Subsection 12.2(1) - Amount to be included
Administrative Policy
27 January 2025 Internal T.I. 2024-1025011I7 - Foreign Mortgage Insurance Plan
While a resident of the Netherlands, the taxpayer acquired (in 1994) a policy to secure a mortgage on a house. The policy included a life insurance component pursuant to which the taxpayer paid monthly premiums that accumulated tax-free over the term of the policy. The taxpayer emigrated to Canada in 2009, the house was sold in 2019 and the taxpayer received a lump sum amount from the issuer on the policy maturity in 2023.
CRA noted that since the policy did not constitute a "life insurance policy in Canada" as defined in s. 138(12), i.e., it was issued while the insured was not resident in Canada, ss. 128.1(1)(b) and (c) applied on the taxpayer's immigration to Canada so that the cost base to him of the policy was equal to its fair market value upon entering Canada. Accordingly, such fair market value cost would be taken into account for the purposes of computing any accrual under s. 12.2(1) (based on any excess of the accumulating fund over the ACB). However, the policy could qualify as an exempt policy notwithstanding the non-resident issuer. Upon maturity of the policy, a policy gain would be computed in the usual manner. Whether the policy was an exempt policy and the amounts used to compute the policy gain could be determined only on the basis of information in the accounts of the foreign issuer.
IT-87R2 "Policyholders' Income from Life Insurance Policies".
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 138 - Subsection 138(12) - Life Insurance Policy | 0 | |
| Tax Topics - Income Tax Regulations - Regulation 307 | 0 |
Articles
Strain, "Life Insurance: An Innovative Financial Instrument", 1993 Conference Report, pp. 35:9-10.
Paragraph 12.2(1)(a)
Administrative Policy
14 May 2019 CLHIA Roundtable Q. 6, 2019-0799101C6 - CLHIA 2019 Conference-Q6 Foreign Exempt Policies
Annual income accrual is required on life insurance policies that are not exempt policies. It is unlikely that testing for compliance with Reg. 306(1) will be routinely performed by the insurer for policies issued outside of Canada where the policyholder is resident in, or immigrates to, Canada. Where the policy is not issued in Canadian currency, there could be failure under the exempt test simply as a result of FX fluctuations. What is such a Canadian taxpayer to do?
CRA responded:
Given that the information to determine the exempt status of a particular life insurance policy is only available in the accounts of the insurer, the onus is on the policyholder to establish that the policy qualifies as an exempt policy.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Regulations - Regulation 306 - Subsection 306(1) | no accommodation for the technical impossibility of demonstrating that a life insurance policy issued abroad is exempt | 200 |
Subsection 12.2(3)
Administrative Policy
24 October 2002 External T.I. 2002-0160715 F - ASSURANCE-VIE IMPOSITION AUX TROIS ANS
Whether the beneficiary of a life insurance policy, acquired after December 1, 1982 with the payment of a single premium, constituted an exempt policy so that there would be no requirement to accrue income under former s. 12.2(3), turned on information that could only be available to the insurer.