Income Tax Regulations — 1403
rate. (6) Notwithstanding paragraph 1401(1)(c), a life insurer in computing its income for a taxation year may, in respect of any class of life insurance policies issued before its 1988 taxation year, other than policies referred to in paragraph 1401(1)(a) or (b), use a method of approximation to convert the reserve in respect of such policies reported by the insurer in its annual report to the relevant authority for the year to an amount that is a reasonable estimate of the amount that would otherwise be determined for such policies under paragraph 1401(1)(c), provided that that method of approximation is acceptable to the Minister on the advice of the relevant authority. (7) For the purpose of subsection (1) and notwithstanding any other provision of this section, where (a) an individual annuity contract was issued prior to 1969 by a life insurer, or (b) a benefit was purchased prior to 1969 under a group annuity contract issued by a life insurer, and the contract (c) is a policy in respect of which the provisions of paragraph 1401(1)(c) as it read in its application to the insurer’s 1977 taxation year applied, the rates of interest and mortality and by the insurer in computing its reserve for the policy under that paragraph for its 1977 taxation year shall be used by the insurer in respect of that policy. (8) Subsections (9) and (10) apply to an insurer if (a) in a taxation year of the insurer, there has been a disposition to the insurer by another person with whom the insurer was dealing at arm’s length in respect of which subsection 138(11.92) of the Act applied; (b) as a result of the disposition, the insurer assumed obligations under life insurance policies (in this subsection and subsections (9) and (10) referred to as the “transferred policies”) in respect of which an amount may be claimed by the insurer as a reserve under paragraph 1401(1)(c) for the taxation year; (c) the amount (referred to in this subsection and subsections (9) and (10) as the “reserve deficiency”) determined by the following formula is a positive amount: (A – B) – C where A is the total of all amounts received or receivable by the insurer from the other person in respect of the transferred policies, B is the total of all amounts paid or payable by the insurer to the other person in respect of commissions in respect of the amounts referred to in the description of A, and C is the total of the maximum amounts that may be claimed by the insurer as a reserve under 1401(1)(c) (determined without reference to this subsection) in respect of the transferred policies for the taxation year; and (d) the reserve deficiency can reasonably be attributed to the fact that the rates of interest, mortality or policy lapse used by the issuer of the transferred policies in determining the cash surrender values or premiums under the transferred policies are no longer reasonable in the circumstances. (9) If this subsection applies to an insurer in respect of transferred policies for which there was a reserve deficiency, then, for the purposes of subsection (1) and subject to subsection (10), (a) the insurer may make such revisions to the rates of interest, mortality or policy lapse used by the issuer of the transferred policies to eliminate all or any part of the reserve deficiency; and (b) the revised rates are deemed to have been used by the issuer of the transferred policies in determining the cash surrender value or premiums under the policies. (10) If, under subsection (9), an insurer has revised the rates of interest, mortality or policy lapse used by the issuer of transferred policies, the Minister may, for the purposes of subsection (1) and paragraph (9)(b), make further revisions to the revised rates to the extent that the insurer’s revisions to those rates are not reasonable in the circumstances. [NOTE: Application provisions are not included in the consolidated text; see relevant amending Acts and regulations.] SOR/79-425, s. 1; SOR/80-419, s. 2; SOR/80-618