Income Tax Act — I-3.3 148
 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, applies by virtue of paragraph 12.2(9)(b) of that Act, ceases to be an exempt policy (otherwise than as a consequence of the death of an individual whose life is insured under the policy or at a time when that individual is totally and permanently disabled), the policyholder shall be deemed to have disposed of the policyholder’s interest in the policy at that time for proceeds of disposition equal to the accumulating fund with respect to the interest, as determined in prescribed manner, at that time and to have reacquired the interest immediately after that time at a cost equal to those proceeds; and (e) a policyholder with an interest in a life insurance policy, issued after 2016, that gives rise to an entitlement (of the policyholder, beneficiary or assignee, as the case may be) to receive all or a portion of an excess described in subparagraph (iv) is deemed, at a particular time, to dispose of a part of the interest and to be entitled to receive proceeds of the disposition equal to that excess or portion, as the case may be, if (i) the policy is an exempt policy, (ii) a benefit on death (as defined in subsection 1401(3) of the Income Tax Regulations ) under a coverage (as defined in section 310 of the Income Tax Regulations for the purposes of section 306 of the Income Tax Regulations ) under the policy is paid at the particular time, (iii) the payment results in the termination of the coverage but not the policy, and (iv) the amount of the fund value benefit (as defined in subsection 1401(3) of the Income Tax Regulations ) paid at the particular time in respect of the coverage exceeds the amount (A) in the case where there is no policy anniversary (as defined in section 310 of the Income Tax Regulations ) before the date of death of the individual whose life is insured under the coverage, that would be determined — on the policy anniversary that is on or that first follows that date of death and as though the coverage were not terminated — in respect of the coverage under subclause (A)(I) of the description of B in subparagraph 306(4)(a)(iii) of the Income Tax Regulations , and (B) in any other case, that is determined — on the last policy anniversary before the date of the death of the individual whose life is insured under the coverage — in respect of the coverage under subclause (A)(I) of the description of B in subparagraph 306(4)(a)(iii) of the Income Tax Regulations as it applies for the purpose of subparagraph 306(1)(b)(ii) of the Income Tax Regulations . Special rules for certain policies (3) For the purposes of this section, where all or any part of an insurer’s reserves for a life insurance policy vary in amount depending on the fair market value of a specified group of properties (in this subsection referred to as a “segregated fund”), (a) in computing the adjusted cost basis of the policy, (i) an amount paid by the policyholder or on the policyholder’s behalf as or on account of premiums under the policy or to acquire an interest in the policy shall, to the extent that the amount was used by the insurer to acquire property for the purposes of the segregated fund, be deemed not to have been so paid, and (ii) any transfer of property by the insurer from the segregated fund that resulted in an increase in the portion of its reserves for the policy that do not vary with the fair market value of the segregated fund shall be deemed to have been a premium paid under the policy by the policyholder; and (b) the proceeds of the disposition of an interest in the policy shall be deemed not to include the portion thereof, if any, payable out of the segregated fund. Partial surrender — ACB prorated (4) If a taxpayer disposes (other than because of paragraph (2)(a) or as described in paragraph (b) of the definition disposition in sub