• Service: Tax, Global Compliance Management Services, International Tax
  • Type: Regulatory update
  • Date: 8/28/2013

Canada - Proposals for new exempt life insurance policy rules 

August 28: Canada’s Department of Finance released a 48-page package of amendments that would implement changes to the exemption test and other life insurance policyholder taxation rules (24 pages of draft legislation and 24 pages of explanatory notes).

Finance Canada is providing a 75-day consultation period, with comments due by 6 November 2013.

Legislative proposals

According to the explanatory notes, the legislative proposals would amend several aspects of the rules relating to the tax treatment of life insurance policies other than annuity contracts, including:

  • Determining whether a policy is an exempt policy
  • Determining what types of transactions give rise to a disposition of an interest in a policy
  • Determining the tax treatment of a disposition of an interest in a policy (related to both the adjusted cost basis of the interest and its proceeds of the disposition)
  • Amendments to the Investment Income Tax as a consequence of some of the other amendments

The proposals also would amend the rules applying to the determination of the capital element of annuity payments for certain annuity contracts.

According to the explanatory notes, Finance expects to introduce “grandfathering” treatment for the principal legislative amendments.

Read an August 2013 report prepared by the KPMG member firm in Canada: Finance Proposes New Exempt Life Insurance Policy Rules

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