I-3 - Taxation Act

Section 832.3 Disposition versions

2023-09-26

832.3. The rules prescribed in the second paragraph apply where the following conditions are met:

(a)  an insurer not resident in Canada, in this section referred to as the “transferor”, has, at any time in a taxation year, ceased to carry on all or substantially all of an insurance business carried on by it in Canada in that year;

(b)  the transferor has, at the time referred to in subparagraph a or within 60 days after that time, transferred all or substantially all of the property, in this section referred to as the “transferred property”, that is owned by it at that time and that was designated insurance property in relation to the business for the taxation year that, because of the election referred to in subparagraph d, ended immediately before that time, to a corporation, in this section referred to as the “transferee”, that is a prescribed corporation which, immediately after that time, began to carry on that insurance business in Canada, and the consideration for the transfer includes shares of the capital stock of the transferee;

(c)  the transferee has, at the time referred to in subparagraph a or within 60 days thereafter, assumed or reinsured all or substantially all of the obligations of the transferor that arose in the course of carrying on the insurance business in Canada referred to in subparagraph a;

(d)  the transferor and the transferee have made a valid election under paragraph d of subsection 11.5 of section 138 of the Income Tax Act (R.S.C. 1985, c. 1 (5th Suppl.)) in respect of the transfer.

The rules referred to in the first paragraph are as follows:

(a)  subject to subparagraph g.1, where the fair market value, at the time referred to in subparagraph a of the first paragraph, of the consideration, other than shares of the capital stock of the transferee or a right to receive any such shares, received or receivable by the transferor for the transferred property does not exceed the aggregate of the cost amounts to the transferor, at that time, of the transferred property, the proceeds of disposition of the transferor and the cost to the transferee of the transferred property are deemed to be equal to the cost amount, at that time, to the transferor of the transferred property, and, in any other case, sections 521 to 526 and 528 shall be applied in respect of the transfer;

(b)  where sections 521 to 526 and 528 are not required to be applied in respect of the transfer, the cost to the transferor of any particular property, other than shares of the capital stock of the transferee or a right to receive any such shares, received or receivable by the transferor as consideration for the transferred property is deemed to be equal to the fair market value, at the time referred to in subparagraph a of the first paragraph, of the particular property;

(c)  where sections 521 to 526 and 528 are not required to be applied in respect of the transfer, the cost to the transferor of any share of the capital stock of the transferee received or receivable by the transferor as consideration for the transferred property is deemed to be equal to,

i.  where the share is a preferred share of any class of the capital stock of the transferee, the lesser of

(1)  the fair market value of that share immediately after the transfer of the transferred property, and

(2)  the amount determined by the formula

A × B/C,

ii.  where the share is a common share of any class of the capital stock of the transferee, the amount determined by the formula

D × E/F;

(d)  (subparagraph repealed);

(e)  for the purpose of determining the amount of gross investment revenue required by the first paragraph of section 825 to be included in computing the transferor’s income for the transferor’s particular taxation year that ended immediately before the time referred to in subparagraph a of the first paragraph and of determining its gains and losses from its designated insurance property for its subsequent taxation years, the transferor is deemed to have transferred the business referred to in subparagraph a of the first paragraph, the property referred to in subparagraph b of that paragraph and the obligations referred to in subparagraph c of that paragraph to the transferee on the last day of the particular taxation year;

(f)  for the purpose of determining the income of the transferor and the transferee for their taxation years following their particular taxation years that ended immediately before the time referred to in subparagraph a of the first paragraph, the amounts deducted by the transferor as reserves under sections 140, 140.1 and 140.2, the second paragraph of section 152 and paragraph a of section 840 in its particular taxation year in respect of the transferred property referred to in subparagraph b of the first paragraph or the obligations referred to in subparagraph c of that paragraph, are deemed to have been deducted by the transferee, and not the transferor, for its particular taxation year;

(f.1)  for the purpose of determining the income of the transferor and the transferee for their taxation years following their particular taxation years that ended immediately before the time referred to in subparagraph a of the first paragraph, the amounts included under paragraph e.1 of section 87 and paragraph a.1 of section 844 in computing the transferor’s income for its particular taxation year in respect of the insurance policies of the business referred to in subparagraph a of the first paragraph are deemed to have been included in computing the income of the transferee, and not of the transferor, for their particular taxation years;

(g)  for the purposes of this chapter, sections 87 to 87.4, 89 to 92.7, 92.22, 128, 130 and 130.1, paragraph b of section 135, sections 137 to 143, 145 to 154, 155, 156, 157 to 157.3, 157.5 to 158, 160 to 163.1, 167, 167.1, 176 to 179, 183 and 835 to 851.22, paragraphs c and d of section 851.22.11 and sections 966 to 977.1, the transferee is deemed, for its taxation years following its taxation year that ended immediately before the time referred to in subparagraph a of the first paragraph, to be a continuation of the transferor in respect of the transferred property, the business referred to in subparagraph a of the first paragraph and the obligations referred to in subparagraph c of that paragraph;

(g.1)  except for the purposes of this section, where the provisions of sections 521 to 526 and 528 are not required to be applied in respect of the transfer, the following rules apply to each transferred property that is a specified debt obligation, other than a mark-to-market property, within the meaning assigned by section 851.22.1:

i.  the transferor is deemed not to have disposed of that property, and

ii.  the transferee is deemed, in respect of that property, to be a continuation of the transferor;

(g.2)  for the purposes of sections 744.6 and 744.8 and the definition of “mark-to-market property” in section 851.22.1, the transferee is deemed to be a continuation of the transferor in respect of the transferred property;

(h)  for the purposes of this section and section 832.5, the fair market value of consideration received by the transferor from the transferee in respect of the assumption or reinsurance of a particular obligation referred to in subparagraph c of the first paragraph is deemed to be equal to the aggregate of the amounts deducted by the transferor as reserves under the second paragraph of section 152 and paragraph a of section 840 in its taxation year that ended immediately before the time referred to in subparagraph a of the first paragraph in respect of the particular obligation; and

(i)  for the purposes of computing the income of the transferor or the transferee for their taxation years following their taxation years that ended immediately before the time referred to in subparagraph a of the first paragraph, the following amounts shall be included or deducted, as the case may be, only to the extent that may be reasonably regarded as necessary to determine the appropriate amount of income of both the transferor and the transferee:

(1)  an amount in respect of a reinsurance premium paid or payable by the transferor to the transferee in respect of the obligations referred to in subparagraph c of the first paragraph under a reinsurance arrangement undertaken to effect the transfer of the insurance business to which this section applied;

(2)  an amount in respect of a reinsurance commission paid or payable by the transferee to the transferor in respect of the amount referred to in subparagraph 1 under the reinsurance arrangement referred to in that subparagraph.

For the purposes of the formulas set forth in subparagraph c of the second paragraph,

(a)  A is the amount by which the proceeds of disposition of the transferor of the transferred property determined under subparagraph a of the second paragraph exceed the fair market value, at the time referred to in subparagraph a of the first paragraph, of the consideration, other than shares of the capital stock of the transferee or a right to receive any such shares, received or receivable by the transferor for the transferred property;

(b)  B is the fair market value, immediately after the transfer of the transferred property, of the preferred share of the class referred to in subparagraph i of the said subparagraph c;

(c)  C is the fair market value, immediately after the transfer of the transferred property, of all preferred shares of the capital stock of the transferee receivable by the transferor as consideration for the transferred property;

(d)  D is the amount by which the proceeds of disposition of the transferor of the transferred property, determined under subparagraph a of the second paragraph, exceed the aggregate of the fair market value, at the time referred to in subparagraph a of the first paragraph, of the consideration, other than shares of the capital stock of the transferee or a right to receive any such shares, received or receivable by the transferor for the transferred property and the cost to the transferor of all preferred shares of the capital stock of the transferee receivable by the transferor as consideration for the transferred property;

(e)  E is the fair market value, immediately after the transfer of the transferred property, of the common share of the class referred to in subparagraph ii of the said subparagraph c of the capital stock of the transferee;

(f)  F is the fair market value, immediately after the transfer of the transferred property, of all common shares of the capital stock of the transferee receivable by the transferor as consideration for the transferred property.

Where the rules under the second paragraph apply in respect of a transfer, the prescribed form along with a copy of every document sent to the Minister of Revenue of Canada in respect of the transfer, in connection with the election referred to in subparagraph d of the first paragraph, shall be sent to the Minister on or before the earliest of the filing-due dates of the transferor and the transferee for the taxation year in which the transactions to which the election relates occurred.

1984, c. 15, s. 185; 1990, c. 59, s. 313; 1993, c. 16, s. 302; 1996, c. 39, s. 228; 1997, c. 3, s. 71; 1997, c. 31, s. 143; 1997, c. 85, s. 196; 1998, c. 16, s. 196; 2000, c. 5, s. 293; 2004, c. 8, s. 160; 2009, c. 5, s. 348; 2015, c. 24, s. 117; 2023, c. 19, s. 64.

2015-10-26

832.3. The rules prescribed in the second paragraph apply where the following conditions are met:

(a)  an insurer not resident in Canada, in this section referred to as the “transferor”, has, at any time in a taxation year, ceased to carry on all or substantially all of an insurance business carried on by it in Canada in that year;

(b)  the transferor has, at the time referred to in subparagraph a or within 60 days after that time, transferred all or substantially all of the property, in this section referred to as the “transferred property”, that is owned by it at that time and that was designated insurance property in relation to the business for the taxation year that, because of the election referred to in subparagraph d, ended immediately before that time, to a corporation, in this section referred to as the “transferee”, that is a prescribed corporation which, immediately after that time, began to carry on that insurance business in Canada, and the consideration for the transfer includes shares of the capital stock of the transferee;

(c)  the transferee has, at the time referred to in subparagraph a or within 60 days thereafter, assumed or reinsured all or substantially all of the obligations of the transferor that arose in the course of carrying on the insurance business in Canada referred to in subparagraph a;

(d)  the transferor and the transferee have made a valid election under paragraph d of subsection 11.5 of section 138 of the Income Tax Act (R.S.C. 1985, c. 1 (5th Suppl.)) in respect of the transfer.

The rules referred to in the first paragraph are as follows:

(a)  subject to subparagraph g.1, where the fair market value, at the time referred to in subparagraph a of the first paragraph, of the consideration, other than shares of the capital stock of the transferee or a right to receive any such shares, received or receivable by the transferor for the transferred property does not exceed the aggregate of the cost amounts to the transferor, at that time, of the transferred property, the proceeds of disposition of the transferor and the cost to the transferee of the transferred property are deemed to be equal to the cost amount, at that time, to the transferor of the transferred property, and, in any other case, sections 521 to 526 and 528 shall be applied in respect of the transfer;

(b)  where sections 521 to 526 and 528 are not required to be applied in respect of the transfer, the cost to the transferor of any particular property, other than shares of the capital stock of the transferee or a right to receive any such shares, received or receivable by the transferor as consideration for the transferred property is deemed to be equal to the fair market value, at the time referred to in subparagraph a of the first paragraph, of the particular property;

(c)  where sections 521 to 526 and 528 are not required to be applied in respect of the transfer, the cost to the transferor of any share of the capital stock of the transferee received or receivable by the transferor as consideration for the transferred property is deemed to be equal to,

i.  where the share is a preferred share of any class of the capital stock of the transferee, the lesser of

(1)  the fair market value of that share immediately after the transfer of the transferred property, and

(2)  the amount determined by the formula

A × B/C,

ii.  where the share is a common share of any class of the capital stock of the transferee, the amount determined by the formula

D × E/F;

(d)  (subparagraph repealed);

(e)  for the purpose of determining the amount of gross investment revenue required by the first paragraph of section 825 to be included in computing the transferor’s income for the transferor’s particular taxation year that ended immediately before the time referred to in subparagraph a of the first paragraph and of determining its gains and losses from its designated insurance property for its subsequent taxation years, the transferor is deemed to have transferred the business referred to in subparagraph a of the first paragraph, the property referred to in subparagraph b of that paragraph and the obligations referred to in subparagraph c of that paragraph to the transferee on the last day of the particular taxation year;

(f)  for the purpose of determining the income of the transferor and the transferee for their taxation years following their particular taxation years that ended immediately before the time referred to in subparagraph a of the first paragraph, the amounts deducted by the transferor as reserves under sections 140, 140.1 and 140.2, the second paragraph of section 152 and paragraphs a and a.1 of section 840 in its particular taxation year in respect of the transferred property referred to in subparagraph b of the first paragraph or the obligations referred to in subparagraph c of that paragraph, are deemed to have been deducted by the transferee, and not the transferor, for its particular taxation year;

(f.1)  for the purpose of determining the income of the transferor and the transferee for their taxation years following their particular taxation years that ended immediately before the time referred to in subparagraph a of the first paragraph, the amounts included under paragraph e.1 of section 87 and paragraph a.1 of section 844 in computing the transferor’s income for its particular taxation year in respect of the insurance policies of the business referred to in subparagraph a of the first paragraph are deemed to have been included in computing the income of the transferee, and not of the transferor, for their particular taxation years;

(g)  for the purposes of this chapter, sections 87 to 87.4, 89 to 92.7, 92.22, 128, 130 and 130.1, paragraph b of section 135, sections 137 to 143, 145 to 154, 155, 156, 157 to 157.3, 157.5 to 158, 160 to 163.1, 167, 167.1, 176 to 179, 183 and 835 to 851.22, paragraphs c and d of section 851.22.11 and sections 966 to 977.1, the transferee is deemed, for its taxation years following its taxation year that ended immediately before the time referred to in subparagraph a of the first paragraph, to be a continuation of the transferor in respect of the transferred property, the business referred to in subparagraph a of the first paragraph and the obligations referred to in subparagraph c of that paragraph;

(g.1)  except for the purposes of this section, where the provisions of sections 521 to 526 and 528 are not required to be applied in respect of the transfer, the following rules apply to each transferred property that is a specified debt obligation, other than a mark-to-market property, within the meaning assigned by section 851.22.1:

i.  the transferor is deemed not to have disposed of that property, and

ii.  the transferee is deemed, in respect of that property, to be a continuation of the transferor;

(g.2)  for the purposes of sections 744.6 and 744.8 and the definition of “mark-to-market property” in section 851.22.1, the transferee is deemed to be a continuation of the transferor in respect of the transferred property;

(h)  for the purposes of this section and section 832.5, the fair market value of consideration received by the transferor from the transferee in respect of the assumption or reinsurance of a particular obligation referred to in subparagraph c of the first paragraph is deemed to be equal to the aggregate of the amounts deducted by the transferor as reserves under the second paragraph of section 152 and paragraphs a and a.1 of section 840 in its taxation year that ended immediately before the time referred to in subparagraph a of the first paragraph in respect of the particular obligation; and

(i)  for the purposes of computing the income of the transferor or the transferee for their taxation years following their taxation years that ended immediately before the time referred to in subparagraph a of the first paragraph, the following amounts shall be included or deducted, as the case may be, only to the extent that may be reasonably regarded as necessary to determine the appropriate amount of income of both the transferor and the transferee:

(1)  an amount in respect of a reinsurance premium paid or payable by the transferor to the transferee in respect of the obligations referred to in subparagraph c of the first paragraph under a reinsurance arrangement undertaken to effect the transfer of the insurance business to which this section applied;

(2)  an amount in respect of a reinsurance commission paid or payable by the transferee to the transferor in respect of the amount referred to in subparagraph 1 under the reinsurance arrangement referred to in that subparagraph.

For the purposes of the formulas set forth in subparagraph c of the second paragraph,

(a)  A is the amount by which the proceeds of disposition of the transferor of the transferred property determined under subparagraph a of the second paragraph exceed the fair market value, at the time referred to in subparagraph a of the first paragraph, of the consideration, other than shares of the capital stock of the transferee or a right to receive any such shares, received or receivable by the transferor for the transferred property;

(b)  B is the fair market value, immediately after the transfer of the transferred property, of the preferred share of the class referred to in subparagraph i of the said subparagraph c;

(c)  C is the fair market value, immediately after the transfer of the transferred property, of all preferred shares of the capital stock of the transferee receivable by the transferor as consideration for the transferred property;

(d)  D is the amount by which the proceeds of disposition of the transferor of the transferred property, determined under subparagraph a of the second paragraph, exceed the aggregate of the fair market value, at the time referred to in subparagraph a of the first paragraph, of the consideration, other than shares of the capital stock of the transferee or a right to receive any such shares, received or receivable by the transferor for the transferred property and the cost to the transferor of all preferred shares of the capital stock of the transferee receivable by the transferor as consideration for the transferred property;

(e)  E is the fair market value, immediately after the transfer of the transferred property, of the common share of the class referred to in subparagraph ii of the said subparagraph c of the capital stock of the transferee;

(f)  F is the fair market value, immediately after the transfer of the transferred property, of all common shares of the capital stock of the transferee receivable by the transferor as consideration for the transferred property.

Where the rules under the second paragraph apply in respect of a transfer, the prescribed form along with a copy of every document sent to the Minister of Revenue of Canada in respect of the transfer, in connection with the election referred to in subparagraph d of the first paragraph, shall be sent to the Minister on or before the earliest of the filing-due dates of the transferor and the transferee for the taxation year in which the transactions to which the election relates occurred.

1984, c. 15, s. 185; 1990, c. 59, s. 313; 1993, c. 16, s. 302; 1996, c. 39, s. 228; 1997, c. 3, s. 71; 1997, c. 31, s. 143; 1997, c. 85, s. 196; 1998, c. 16, s. 196; 2000, c. 5, s. 293; 2004, c. 8, s. 160; 2009, c. 5, s. 348; 2015, c. 24, s. 117.

2009-05-15

832.3. The rules prescribed in the second paragraph apply where the following conditions are met:

(a)  an insurer not resident in Canada, in this section referred to as the “transferor”, has, at any time in a taxation year, ceased to carry on all or substantially all of an insurance business carried on by it in Canada in that year;

(b)  the transferor has, at the time referred to in subparagraph a or within 60 days after that time, transferred all or substantially all of the property, in this section referred to as the “transferred property”, that is owned by it at that time and that was designated insurance property in relation to the business for the taxation year that, because of the election referred to in subparagraph d, ended immediately before that time, to a corporation, in this section referred to as the “transferee”, that is a prescribed corporation which, immediately after that time, began to carry on that insurance business in Canada, and the consideration for the transfer includes shares of the capital stock of the transferee;

(c)  the transferee has, at the time referred to in subparagraph a or within 60 days thereafter, assumed or reinsured all or substantially all of the obligations of the transferor that arose in the course of carrying on the insurance business in Canada referred to in subparagraph a;

(d)  the transferor and the transferee have made a valid election under paragraph d of subsection 11.5 of section 138 of the Income Tax Act (R.S.C. 1985, c. 1 (5th Suppl.)) in respect of the transfer.

The rules referred to in the first paragraph are as follows:

(a)  subject to subparagraph g.1, where the fair market value, at the time referred to in subparagraph a of the first paragraph, of the consideration, other than shares of the capital stock of the transferee or a right to receive any such shares, received or receivable by the transferor for the transferred property does not exceed the aggregate of the cost amounts to the transferor, at that time, of the transferred property, the proceeds of disposition of the transferor and the cost to the transferee of the transferred property are deemed to be equal to the cost amount, at that time, to the transferor of the transferred property, and, in any other case, sections 521 to 526 and 528 shall be applied in respect of the transfer;

(b)  where sections 521 to 526 and 528 are not required to be applied in respect of the transfer, the cost to the transferor of any particular property, other than shares of the capital stock of the transferee or a right to receive any such shares, received or receivable by the transferor as consideration for the transferred property is deemed to be equal to the fair market value, at the time referred to in subparagraph a of the first paragraph, of the particular property;

(c)  where sections 521 to 526 and 528 are not required to be applied in respect of the transfer, the cost to the transferor of any share of the capital stock of the transferee received or receivable by the transferor as consideration for the transferred property is deemed to be equal to,

i.  where the share is a preferred share of any class of the capital stock of the transferee, the lesser of

(1)  the fair market value of that share immediately after the transfer of the transferred property, and

(2)  the amount determined by the formula

A × B/C,

ii.  where the share is a common share of any class of the capital stock of the transferee, the amount determined by the formula

D × E/F;

(d)  (subparagraph repealed);

(e)  for the purpose of determining the amount of gross investment revenue required by the first paragraph of section 825 to be included in computing the transferor’s income for the transferor’s particular taxation year that ended immediately before the time referred to in subparagraph a of the first paragraph and of determining its gains and losses from its designated insurance property for its subsequent taxation years, the transferor is deemed to have transferred the business referred to in subparagraph a of the first paragraph, the property referred to in subparagraph b of that paragraph and the obligations referred to in subparagraph c of that paragraph to the transferee on the last day of the particular taxation year;

(f)  for the purpose of determining the income of the transferor and the transferee for their taxation years following their particular taxation years that ended immediately before the time referred to in subparagraph a of the first paragraph, the amounts deducted by the transferor as reserves under sections 140, 140.1 and 140.2, the second paragraph of section 152 and paragraphs a, a.1 and d of section 840 in its particular taxation year in respect of the transferred property referred to in subparagraph b of the first paragraph or the obligations referred to in subparagraph c of that paragraph, are deemed to have been deducted by the transferee, and not the transferor, for its particular taxation year;

(f.1)  for the purpose of determining the income of the transferor and the transferee for their taxation years following their particular taxation years that ended immediately before the time referred to in subparagraph a of the first paragraph, the amounts included under paragraph e.1 of section 87 and paragraph a.1 of section 844 in computing the transferor’s income for its particular taxation year in respect of the insurance policies of the business referred to in subparagraph a of the first paragraph are deemed to have been included in computing the income of the transferee, and not of the transferor, for their particular taxation years;

(g)  for the purposes of this chapter, sections 87 to 87.4, 89 to 92.7, 92.21, 92.22, 128, 130 and 130.1, paragraph b of section 135, sections 137 to 143, 145 to 154, 155, 156, 157 to 157.3, 157.5 to 158, 160 to 163.1, 167, 167.1, 176 to 179, 183 and 835 to 851.22, paragraphs c and d of section 851.22.11 and sections 851.22.18, 851.22.20 and 966 to 977.1, the transferee is deemed, for its taxation years following its taxation year that ended immediately before the time referred to in subparagraph a of the first paragraph, to be a continuation of the transferor in respect of the transferred property, the business referred to in subparagraph a of the first paragraph and the obligations referred to in subparagraph c of that paragraph;

(g.1)  except for the purposes of this section, where the provisions of sections 521 to 526 and 528 are not required to be applied in respect of the transfer, the following rules apply to each transferred property that is a specified debt obligation, other than a mark-to-market property, within the meaning assigned by section 851.22.1:

i.  the transferor is deemed not to have disposed of that property, and

ii.  the transferee is deemed, in respect of that property, to be a continuation of the transferor;

(g.2)  for the purposes of sections 744.6 and 744.8 and the definition of “mark-to-market property” in section 851.22.1, the transferee is deemed to be a continuation of the transferor in respect of the transferred property;

(h)  for the purposes of this section and section 832.5, the fair market value of consideration received by the transferor from the transferee in respect of the assumption or reinsurance of a particular obligation referred to in subparagraph c of the first paragraph is deemed to be equal to the aggregate of the amounts deducted by the transferor as a reserve under the second paragraph of section 152 and paragraphs a, a.1 and d of section 840 in its taxation year that ended immediately before the time referred to in subparagraph a of the first paragraph in respect of the particular obligation;

(i)  for the purposes of computing the income of the transferor or the transferee for their taxation years following their taxation years that ended immediately before the time referred to in subparagraph a of the first paragraph, the following amounts shall be included or deducted, as the case may be, only to the extent that may be reasonably regarded as necessary to determine the appropriate amount of income of both the transferor and the transferee:

(1)  an amount in respect of a reinsurance premium paid or payable by the transferor to the transferee in respect of the obligations referred to in subparagraph c of the first paragraph under a reinsurance arrangement undertaken to effect the transfer of the insurance business to which this section applied;

(2)  an amount in respect of a reinsurance commission paid or payable by the transferee to the transferor in respect of the amount referred to in subparagraph 1 under the reinsurance arrangement referred to in that subparagraph.

For the purposes of the formulas set forth in subparagraph c of the second paragraph,

(a)  A is the amount by which the proceeds of disposition of the transferor of the transferred property determined under subparagraph a of the second paragraph exceed the fair market value, at the time referred to in subparagraph a of the first paragraph, of the consideration, other than shares of the capital stock of the transferee or a right to receive any such shares, received or receivable by the transferor for the transferred property;

(b)  B is the fair market value, immediately after the transfer of the transferred property, of the preferred share of the class referred to in subparagraph i of the said subparagraph c;

(c)  C is the fair market value, immediately after the transfer of the transferred property, of all preferred shares of the capital stock of the transferee receivable by the transferor as consideration for the transferred property;

(d)  D is the amount by which the proceeds of disposition of the transferor of the transferred property, determined under subparagraph a of the second paragraph, exceed the aggregate of the fair market value, at the time referred to in subparagraph a of the first paragraph, of the consideration, other than shares of the capital stock of the transferee or a right to receive any such shares, received or receivable by the transferor for the transferred property and the cost to the transferor of all preferred shares of the capital stock of the transferee receivable by the transferor as consideration for the transferred property;

(e)  E is the fair market value, immediately after the transfer of the transferred property, of the common share of the class referred to in subparagraph ii of the said subparagraph c of the capital stock of the transferee;

(f)  F is the fair market value, immediately after the transfer of the transferred property, of all common shares of the capital stock of the transferee receivable by the transferor as consideration for the transferred property.

Where the rules under the second paragraph apply in respect of a transfer, the prescribed form along with a copy of every document sent to the Minister of Revenue of Canada in respect of the transfer, in connection with the election referred to in subparagraph d of the first paragraph, shall be sent to the Minister on or before the earliest of the filing-due dates of the transferor and the transferee for the taxation year in which the transactions to which the election relates occurred.

1984, c. 15, s. 185; 1990, c. 59, s. 313; 1993, c. 16, s. 302; 1996, c. 39, s. 228; 1997, c. 3, s. 71; 1997, c. 31, s. 143; 1997, c. 85, s. 196; 1998, c. 16, s. 196; 2000, c. 5, s. 293; 2004, c. 8, s. 160; 2009, c. 5, s. 348.

2006-03-01

832.3. The rules prescribed in the second paragraph apply where the following conditions are met:

(a)  an insurer not resident in Canada, in this section referred to as the “transferor”, has, at any time in a taxation year, ceased to carry on all or substantially all of an insurance business carried on by it in Canada in that year;

(b)  the transferor has, at the time referred to in subparagraph a or within 60 days after that time, transferred all or substantially all of the property, in this section referred to as the “transferred property”, that is owned by it at that time and that was designated insurance property in relation to the business for the taxation year that, because of subparagraph d of the second paragraph, ended immediately before that time, to a corporation, in this section referred to as the “transferee”, that is a prescribed corporation which, immediately after that time, began to carry on that insurance business in Canada, and the consideration for the transfer includes shares of the capital stock of the transferee;

(c)  the transferee has, at the time referred to in subparagraph a or within 60 days thereafter, assumed or reinsured all or substantially all of the obligations of the transferor that arose in the course of carrying on the insurance business in Canada referred to in subparagraph a;

(d)  the transferor and the transferee have made a valid election under paragraph d of subsection 11.5 of section 138 of the Income Tax Act (Revised Statutes of Canada, 1985, chapter 1, 5th Supplement) in respect of the transfer.

The rules referred to in the first paragraph are as follows:

(a)  subject to subparagraph g.1, where the fair market value, at the time referred to in subparagraph a of the first paragraph, of the consideration, other than shares of the capital stock of the transferee or a right to receive any such shares, received or receivable by the transferor for the transferred property does not exceed the aggregate of the cost amounts to the transferor, at that time, of the transferred property, the proceeds of disposition of the transferor and the cost to the transferee of the transferred property are deemed to be equal to the cost amount, at that time, to the transferor of the transferred property, and, in any other case, sections 521 to 526 and 528 shall be applied in respect of the transfer;

(b)  where sections 521 to 526 and 528 are not required to be applied in respect of the transfer, the cost to the transferor of any particular property, other than shares of the capital stock of the transferee or a right to receive any such shares, received or receivable by the transferor as consideration for the transferred property is deemed to be equal to the fair market value, at the time referred to in subparagraph a of the first paragraph, of the particular property;

(c)  where sections 521 to 526 and 528 are not required to be applied in respect of the transfer, the cost to the transferor of any share of the capital stock of the transferee received or receivable by the transferor as consideration for the transferred property is deemed to be equal to,

i.  where the share is a preferred share of any class of the capital stock of the transferee, the lesser of

(1)  the fair market value of that share immediately after the transfer of the transferred property, and

(2)  the amount determined by the formula

A × B / C,

ii.  where the share is a common share of any class of the capital stock of the transferee, the amount determined by the formula

D × E / F;

(d)  for the purposes of this Part, both the transferor and the transferee are deemed to have had taxation years ending immediately before the time referred to in subparagraph a of the first paragraph and, for the purposes of determining the fiscal periods of the transferor and transferee after that time, they are deemed not to have established fiscal periods before that time;

(e)  for the purpose of determining the amount of gross investment revenue required by the first paragraph of section 825 to be included in computing the transferor’s income for the taxation year referred to in subparagraph d and its gains and losses from its designated insurance property for its subsequent taxation years, the transferor is deemed to have transferred the business referred to in subparagraph a of the first paragraph, the property referred to in subparagraph b of that paragraph and the obligations referred to in subparagraph c of that paragraph to the transferee on the last day of the taxation year referred to in subparagraph d;

(f)  for the purposes of determining the income of the transferor and the transferee for their taxation years following their taxation years referred to in subparagraph d, amounts deducted by the transferor as reserves under sections 140, 140.1 and 140.2, the second paragraph of section 152 and paragraphs a, a.1 and d of section 840 in its taxation year referred to in subparagraph d in respect of the transferred property referred to in subparagraph b of the first paragraph or the obligations referred to in subparagraph c of that paragraph, are deemed to have been deducted by the transferee, and not the transferor, for its taxation year referred to in subparagraph d;

(f.1)  for the purpose of determining the income of the transferor and the transferee for their taxation years following their taxation years referred to in subparagraph d, the amounts included under paragraph e.1 of section 87 and paragraph a.1 of section 844 in computing the transferor’s income for its taxation year referred to in subparagraph d in respect of the insurance policies of the business referred to in subparagraph a of the first paragraph are deemed to have been included in computing the income of the transferee, and not of the transferor, for their taxation years referred to in subparagraph d;

(g)  for the purposes of this chapter, sections 87 to 87.4, 89 to 92.7, 92.21, 92.22, 128, 130 and 130.1, paragraph b of section 135, sections 137 to 143, 145 to 154, 155, 156, 157 to 157.3, 157.5 to 158, 160 to 163.1, 167, 167.1, 176 to 179, 183 and 835 to 851.22, paragraphs c and d of section 851.22.11 and sections 851.22.18, 851.22.20 and 966 to 977.1, the transferee is deemed, for its taxation years following its taxation year referred to in subparagraph d, to be a continuation of the transferor in respect of the transferred property, the business referred to in subparagraph a of the first paragraph and the obligations referred to in subparagraph c of that paragraph;

(g.1)  except for the purposes of this section, where the provisions of sections 521 to 526 and 528 are not required to be applied in respect of the transfer, the following rules apply to each transferred property that is a specified debt obligation, other than a mark-to-market property, within the meaning assigned by section 851.22.1:

i.  the transferor is deemed not to have disposed of that property, and

ii.  the transferee is deemed, in respect of that property, to be a continuation of the transferor;

(g.2)  for the purposes of sections 744.6 and 744.8 and the definition of “mark-to-market property” in section 851.22.1, the transferee is deemed to be a continuation of the transferor in respect of the transferred property;

(h)  for the purposes of this section and section 832.5, the fair market value of consideration received by the transferor from the transferee in respect of the assumption or reinsurance of a particular obligation referred to in subparagraph c of the first paragraph is deemed to be equal to the aggregate of the amounts deducted by the transferor as a reserve under the second paragraph of section 152 and paragraphs a, a.1 and d of section 840 in its taxation year referred to in subparagraph d in respect of the particular obligation;

(i)  for the purposes of computing the income of the transferor or the transferee for their taxation years following their taxation years referred to in subparagraph d, the following amounts shall be included or deducted, as the case may be, only to the extent that may be reasonably regarded as necessary to determine the appropriate amount of income of both the transferor and the transferee:

(1)  an amount in respect of a reinsurance premium paid or payable by the transferor to the transferee in respect of the obligations referred to in subparagraph c of the first paragraph under a reinsurance arrangement undertaken to effect the transfer of the insurance business to which this section applied;

(2)  an amount in respect of a reinsurance commission paid or payable by the transferee to the transferor in respect of the amount referred to in subparagraph 1 under the reinsurance arrangement referred to in that subparagraph.

For the purposes of the formulas set forth in subparagraph c of the second paragraph,

(a)  A is the amount by which the proceeds of disposition of the transferor of the transferred property determined under subparagraph a of the second paragraph exceed the fair market value, at the time referred to in subparagraph a of the first paragraph, of the consideration, other than shares of the capital stock of the transferee or a right to receive any such shares, received or receivable by the transferor for the transferred property;

(b)  B is the fair market value, immediately after the transfer of the transferred property, of the preferred share of the class referred to in subparagraph i of the said subparagraph c;

(c)  C is the fair market value, immediately after the transfer of the transferred property, of all preferred shares of the capital stock of the transferee receivable by the transferor as consideration for the transferred property;

(d)  D is the amount by which the proceeds of disposition of the transferor of the transferred property, determined under subparagraph a of the second paragraph, exceed the aggregate of the fair market value, at the time referred to in subparagraph a of the first paragraph, of the consideration, other than shares of the capital stock of the transferee or a right to receive any such shares, received or receivable by the transferor for the transferred property and the cost to the transferor of all preferred shares of the capital stock of the transferee receivable by the transferor as consideration for the transferred property;

(e)  E is the fair market value, immediately after the transfer of the transferred property, of the common share of the class referred to in subparagraph ii of the said subparagraph c of the capital stock of the transferee;

(f)  F is the fair market value, immediately after the transfer of the transferred property, of all common shares of the capital stock of the transferee receivable by the transferor as consideration for the transferred property.

Where the rules under the second paragraph apply in respect of a transfer, the prescribed form along with a copy of every document sent to the Minister of Revenue of Canada in respect of the transfer, in connection with the election referred to in subparagraph d of the first paragraph, shall be sent to the Minister on or before the earliest of the filing-due dates of the transferor and the transferee for the taxation year in which the transactions to which the election relates occurred.

1984, c. 15, s. 185; 1990, c. 59, s. 313; 1993, c. 16, s. 302; 1996, c. 39, s. 228; 1997, c. 3, s. 71; 1997, c. 31, s. 143; 1997, c. 85, s. 196; 1998, c. 16, s. 196; 2000, c. 5, s. 293; 2004, c. 8, s. 160.