Income Tax Act — I-3.3 148
Amounts included in computing policyholder’s income 148 (1) There shall be included in computing the income for a taxation year of a policyholder in respect of the disposition of an interest in a life insurance policy, other than a policy that is or is issued pursuant to (a) a registered pension fund or plan, (b) a registered retirement savings plan, (b.1) a registered retirement income fund, (b.2) a TFSA, (b.3) a pooled registered pension plan, (b.4) a FHSA, (c) an income-averaging annuity contract, (d) a deferred profit sharing plan, or (e) an annuity contract if (i) the payment for the annuity contract was deductible under paragraph 60(l) in computing the policyholder’s income, (i.1) the annuity contract is a qualifying trust annuity with respect to a taxpayer and the amount paid to acquire it was deductible under paragraph 60(l) in computing the taxpayer’s income, or (ii) the policyholder acquired the annuity contract in circumstances to which subsection 146(21) applied, the amount, if any, by which the proceeds of the disposition of the policyholder’s interest in the policy that the policyholder, beneficiary or assignee, as the case may be, became entitled to receive in the year exceeds the adjusted cost basis to the policyholder of that interest immediately before the disposition. Amount included in computing taxpayer’s income (1.1) There shall be included in computing the income for a taxation year of a taxpayer in respect of a disposition of an interest in a life insurance policy described in paragraph (e) of the definition disposition in subsection 148(9) the amount, if any, by which the amount of a payment described in paragraph (e) of that definition that the taxpayer became entitled to receive in the year exceeds the amount that would be the taxpayer’s adjusted cost basis of the taxpayer’s interest in the policy immediately before the disposition if, for the purposes of the definition adjusted cost basis in subsection 148(9), the taxpayer were, in respect of that interest in the policy, the policyholder. Deemed proceeds of disposition (2) For the purposes of subsections 148(1) and 20(20) and the definition adjusted cost basis in subsection 148(9) (a) where at any time a policyholder becomes entitled to receive under a life insurance policy a particular amount as, on account of, in lieu of payment of or in satisfaction of, a policy dividend, the policyholder shall be deemed (i) to have disposed of an interest in the policy at that time, and (ii) to have become entitled to receive proceeds of the disposition equal to the amount, if any, by which (A) the particular amount exceeds (B) the part of the particular amount applied immediately after that time to pay a premium under the policy or to repay a policy loan under the policy, as provided for under the terms and conditions of the policy; (b) where in a taxation year a holder of an interest in, or a person whose life is insured or who is the annuitant under, a life insurance policy (other than an annuity contract or an exempt policy) last acquired after December 1, 1982 or an annuity contract (other than a life annuity contract, as defined by regulation, entered into before November 13, 1981 or a prescribed annuity contract) dies, the policyholder shall be deemed to have disposed of the policyholder’s interest in the policy or the contract, as the case may be, immediately before the death; (c) where, as a consequence of a death, a disposition of an interest in a life insurance policy is deemed to have occurred under paragraph 148(2)(b), the policyholder immediately after the death shall be deemed to have acquired the interest at a cost equal to the accumulating fund in respect thereof, as determined in prescribed manner, immediately after the death; (d) where at any time a life insurance policy last acquired after December 1, 1982, or a life insurance policy to which subsection 12.2(9) of the Income Tax Act , chapter 148 of the Revised Statutes of Canada, 1952, appli