Income Tax Regulations — 306
306 (1) For the purposes of this Part and subsection 12.2(11) of the Act, exempt policy at any time means a life insurance policy (other than an annuity contract, LIA policy or a deposit administration fund policy) in respect of which the following conditions are met at that time: (a) if that time is a policy anniversary of the policy, the accumulating fund of the policy at that time (determined without regard to any policy loan) does not exceed the total of the accumulating funds at that time of the exemption test policies issued at or before that time in respect of the policy; (b) assuming that the terms and conditions of the policy do not change from those in effect on the last policy anniversary of the policy at or before that time and, where necessary, making reasonable assumptions about all other factors (including, in the case of a participating life insurance policy within the meaning assigned by subsection 138(12) of the Act, the assumption that the amounts of dividends paid will be as shown in the dividend scale), (i) if the policy is issued before 2017, it is reasonable to expect that the condition in paragraph (a) will be met on each policy anniversary of the policy on which the policy could remain in force after that time and before the endowment date of the exemption test policies issued in respect of the policy, and (ii) if the policy is issued after 2016, it is reasonable to expect — without reference to any automatic adjustments under the policy that may be made after that time to ensure that the policy is an exempt policy and, where applicable, making projections using the most recent values that are used to calculate the accumulating fund in respect of the policy or in respect of each exemption test policy issued in respect of a coverage under the policy, as the case may be — that the condition in paragraph (a) will be met on the policy’s next policy anniversary; (c) the condition in paragraph (a) was met on all policy anniversaries of the policy before that time; and (d) the condition in paragraph (b) was met at all times on and after the first policy anniversary of the policy and before that time. (2) For the purposes of subsection (1), a life insurance policy that is an exempt policy on its first policy anniversary shall be deemed to have been an exempt policy from the time of its issue until that anniversary. (3) For the purposes of this section and section 307, (a) in the case of a life insurance policy issued before 2017, a separate exemption test policy is deemed, subject to subsection (7), to be issued in respect of the life insurance policy (i) on the date of issue of the life insurance policy, and (ii) on each policy anniversary of the life insurance policy on which (A) the amount of the benefit on death under the life insurance policy exceeds (B) 108% of the amount of the benefit on death under the life insurance policy on the later of the life insurance policy’s date of issue and the date of the life insurance policy’s preceding policy anniversary, if any; and (b) in the case of a life insurance policy issued after 2016, a separate exemption test policy is deemed, subject to subsection (7), to be issued in respect of each coverage under the life insurance policy (i) on the date of (A) issue of the life insurance policy, if the coverage is issued before the first policy anniversary of the life insurance policy, (B) issue of the coverage, if the coverage is issued on a policy anniversary of the life insurance policy, or (C) the life insurance policy’s preceding policy anniversary, if the coverage is issued on any date that is after the policy’s first policy anniversary and that is not a policy anniversary, (ii) on each policy anniversary of the life insurance policy on which (A) the amount of the benefit on death under the coverage on that policy anniversary exceeds (B) 108% of the amount of the benefit on death under the coverage, on the later of the coverage’s date of issue and the date of the li