Income Tax Act — I-3.3 148
 annuity contract) last acquired before December 2, 1982, a policyholder became entitled to receive from the insurer at any time before the death of the person whose life was insured thereunder, all the proceeds (other than policy dividends) payable at that time under the policy in the form of an annuity contract or annuity payments, (a) the payments shall be regarded as annuity payments made under an annuity contract; (b) the purchase price of the annuity contract shall be deemed to be the adjusted cost basis of the policy to the policyholder immediately before the first payment under that contract became payable; and (c) the annuity contract or annuity payments shall be deemed not to be proceeds of the disposition of an interest in the policy. Disposition at non-arm’s length and similar cases (7) If an interest of a policyholder in a life insurance policy is, at any time (referred to in this subsection as the disposition time ), disposed of (other than a disposition under paragraph (2)(b)) by way of a gift, by distribution from a corporation or by operation of law only to any person, or in any manner whatever to any person with whom the policyholder was not dealing at arm’s length, (a) the policyholder is deemed to become entitled to receive, at the disposition time, proceeds of the disposition equal to the greatest of (i) the value of the interest at the disposition time, (ii) an amount equal to (A) if the disposition time is before March 22, 2016, nil, and (B) if the disposition time is after March 21, 2016, the fair market value at the disposition time of the consideration, if any, given for the interest, and (iii) an amount equal to (A) if the disposition time is before March 22, 2016, nil, and (B) if the disposition time is after March 21, 2016, the adjusted cost basis to the policyholder of the interest immediately before the disposition time; (b) the person that acquires the interest because of the disposition is deemed to acquire it, at the disposition time, at a cost equal to the amount determined under paragraph (a) in respect of the disposition; (c) in computing the paid-up capital in respect of each class of shares of the capital stock of a corporation at any time at or after the disposition time there shall be deducted the amount determined by the formula (A − B × C/D) × E/A where A is the increase, if any, as a result of the disposition, in the paid-up capital in respect of all the shares of the capital stock of the corporation, B is the amount determined under paragraph (a) in respect of the disposition, C is (i) if consideration is given for the interest, the fair market value at the disposition time of consideration that is shares of the capital stock of the corporation given for the interest, and (ii) if no consideration is given for the interest, 1, D is (i) if consideration is given for the interest, the fair market value at the disposition time of the consideration given for the interest, and (ii) if no consideration is given for the interest, 1, and E is the increase, if any, as a result of the disposition, in the paid-up capital in respect of the class of shares, computed without reference to this paragraph as it applies to the disposition; (d) any contribution of capital to a corporation or partnership in connection with the disposition is deemed, to the extent that it exceeds the amount determined under subparagraph (a)(i) in respect of the disposition, not to result in a contribution of capital for the purpose of applying paragraphs 53(1)(c) and (e) at or after the disposition time; (e) any contributed surplus of a corporation that arose in connection with the disposition is deemed, to the extent that it exceeds the amount determined under subparagraph (a)(i) in respect of the disposition, not to be contributed surplus for the purpose of applying subsection 84(1) at or after the disposition time; and (f) if the disposition time is before March 22, 2016, (i) subparagraphs (ii) and (iii) and paragraph