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Article by Dan Doyle, Jason Swales and Jillian
Welch
Memo No. 2012-21r
On March 29, 2012, the Federal Minister of Finance, Jim
Flaherty, presented the majority government's budget, which
included a number of tax initiatives that are particularly relevant
to the insurance industry. These tax initiatives are reviewed in
this Tax memo.
Life insurance policy exemption test
The budget proposes technical improvements to update and
simplify the test that determines whether a life insurance policy
is an exempt policy. Based on the exemption test implemented in the
early 1980s, a life insurance policy is an exempt policy when the
accumulating savings (or the accumulating fund) in the policy does
not exceed the accumulating fund in a benchmark policy (or an
exemption test policy).
Current rules
Under current rules, the accumulating fund in an exemption test
policy generally is calculated using prescribed mortality and
interest rates, the rates used in determining the premiums, or the
cash surrender value of the actual policy. The accumulating fund in
an actual policy issued by a life insurer is measured using an
amount that is equal to the greater of the cash surrender value of
the policy and the modified net premium reserve in respect of that
policy.
Budget proposal
The budget proposes technical improvements that the government
considers necessary to update and simplify the exemption test, and
to improve consistency between the measurement of the accumulating
fund in an actual policy and the measurement of the accumulating
fund in the exemption test policy.
Read the Tax memo to learn more about proposed changes to the
exemption test for life insurance policies.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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