I-3 - Taxation Act

Section 971 Disposition versions

2019-06-19

971. Where, at a particular time, a policyholder in a life insurance policy disposes in any manner whatever of the policyholder’s interest in the policy to a person with whom the policyholder is not dealing at arm’s length or disposes, by gift, by distribution from a corporation or by operation of law only, of the interest to a person, the following rules apply:

(a)  the policyholder is deemed thereupon to become entitled to receive, at the particular time, proceeds of disposition equal to the greatest of

i.  the value of the interest at the particular time,

ii.  if the particular time is after 21 March 2016, the greater of

(1)  the fair market value of the consideration given, if any, for the interest at the particular time, and

(2)  the adjusted cost basis to the policyholder of the interest immediately before the particular time, and

iii.  if the particular time is before 22 March 2016, an amount equal to zero;

(b)  the person to whom the disposition is made is deemed to acquire the interest, at the particular time, at a cost equal to the amount determined in accordance with subparagraph a, in respect of the disposition;

(c)  any contribution of capital to a corporation or partnership in connection with the disposition is deemed, to the extent that it exceeds the amount determined in accordance with subparagraph i of subparagraph a in respect of the disposition, not to result in a contribution of capital for the purpose of applying paragraphs e and i of section 255 at or after the particular time;

(d)  any contributed surplus of a corporation that arose in connection with the disposition is deemed, to the extent that it exceeds the amount determined in accordance with subparagraph i of subparagraph a in respect of the disposition, not to be contributed surplus for the purpose of applying section 504 at or after the particular time; and

(e)  if the particular time is before 22 March 2016,

i.  subparagraphs c and d apply only in respect of a disposition that occurs after 31 December 1999 and only if at least one person whose life was insured under the policy before 22 March 2016 is alive on that date, and subparagraphs c and d, where they apply in respect of the disposition, are to be read as if “the particular time” were replaced by “the beginning of 22 March 2016”, and

ii.  where any consideration given for the interest includes a share of the capital stock of a corporation, the share (or a share substituted for the share) is disposed of after 21 March 2016 by a taxpayer and section 517.2 applies in respect of the share disposition, then for the purpose of applying Chapter III.1 of Title IX of Book III, the adjusted cost base to the taxpayer of the share immediately before the share disposition is to be reduced by the amount determined by the formula

[A − (B × A / C)] / D.

In the formula in the first paragraph,

(a)  A is the aggregate of all amounts each of which is the fair market value at the particular time of a share of that capital stock given as consideration for the interest;

(b)  B is the greater of the amount determined under subparagraph i of subparagraph a of the first paragraph in respect of the disposition of the interest and the adjusted cost basis to the policyholder of the interest immediately before the disposition of the interest;

(c)  C is the fair market value at the particular time of the consideration given for the interest, if any; and

(d)  D is the total number of shares of that capital stock given as consideration for the interest.

However, the first paragraph does not apply in the case of a deemed disposition described in paragraph b of section 967.

1972, c. 23, s. 703; 1978, c. 26, s. 185; 1984, c. 15, s. 225; 1997, c. 3, s. 71; 2019, c. 14, s. 286.

2006-03-01

971. A holder of a life insurance policy who disposes in any manner whatever of his interest in the policy to a person with whom he is not dealing at arm’s length or who disposes, by gift inter vivos or by will, by distribution from a corporation or by operation of law only, of the said interest to a person is deemed thereupon to be entitled to receive proceeds of disposition equal to the value of the interest at the time of the disposition, and the person to whom the disposition is made is deemed to acquire the interest at a cost equal to such value.

Notwithstanding any provision therein, the first paragraph does not apply in the case of a deemed disposition described in paragraph b of section 967.

1972, c. 23, s. 703; 1978, c. 26, s. 185; 1984, c. 15, s. 225; 1997, c. 3, s. 71.