Income Tax Act — I-3.3 198
Tax on non-qualified investments and use of assets as security 198 (1) Every trust governed by a deferred profit sharing plan or revoked plan that (a) acquires a non-qualified investment, or (b) uses or permits to be used any property of the trust as security for a loan, shall pay a tax equal to the fair market value of (c) the non-qualified investment at the time it was acquired by the trust, or (d) the property used as security at the time it commenced to be so used. Payment of tax (2) A trustee of a trust liable to pay tax under subsection 198(1) shall remit the amount of the tax to the Receiver General within 10 days of the day on which the non-qualified investment is acquired or the property is used as security for a loan, as the case may be. Trustee liable for tax (3) Where a trustee of a trust liable to pay tax under subsection 198(1) does not remit to the Receiver General the amount of the tax within the time specified in subsection 198(2), the trustee is personally liable to pay on behalf of the trust the full amount of the tax and is entitled to recover from the trust any amount paid by the trustee as tax under this section. Refund of tax on disposition of non-qualified investment (4) Where a trust disposes of a property that, when acquired, was a non-qualified investment, the trust is, on application in accordance with section 202, entitled to a refund of an amount equal to the lesser of (a) the amount of the tax imposed under this section as a result of the acquisition of the property, and (b) the proceeds of disposition of the property. Refund of tax on recovery of property given as security (5) Where a loan, for which a trust has used or permitted to be used trust property as security, ceases to be extant, the trust is, on application in accordance with section 202, entitled to a refund of an amount equal to the amount remaining, if any, when (a) the net loss (exclusive of payments by the trust as or on account of interest) sustained by the trust in consequence of its using or permitting to be used the property as security for the loan and not as a result of a change in the fair market value of the property is deducted from (b) the tax imposed under this section in consequence of the trust’s using or permitting to be used the property as security for the loan. Special rules relating to life insurance policies (6) For the purposes of this section, (a) the acquisition of an interest in or the payment of an amount under a life insurance policy shall be deemed not to be the acquisition of a non-qualified investment, and (b) the disposition of an interest in a life insurance policy shall be deemed not to be the disposition of a non-qualified investment, except that where a trust governed by a deferred profit sharing plan or revoked plan makes a payment under or to acquire an interest in a life insurance policy, other than a life insurance policy under which (c) the trust is, or by virtue of the payment about to become, the only person entitled to any rights or benefits under the policy (other than the rights or benefits of the insurer), (d) the cash surrender value of the policy (exclusive of accumulated dividends) is or will be, at or before the end of the year in which the insured person attains 71 years of age, if all premiums under the policy are paid, not less than the maximum total amount (exclusive of accumulated dividends) payable by the insurer under the policy, and (e) the total of the premiums payable in any year under the policy is not greater than the total of the amounts that, if the annual premiums had been payable in monthly instalments, would have been payable as such instalments in the 12 months commencing with the date the policy was issued, the making of the payment shall be deemed to be the acquisition of a non-qualified investment at a cost equal to the amount of the payment. Idem (6.1) A life insurance policy giving an option to the policyholder to receive annuity payments that otherwise complie