What is the exempt test?
The Income Tax Act and Regulations set out rules for determining if a policy is exempt. Almost all permanent policies in Canada are exempt policies, and the insurance company is responsible for ensuring the policy is maintained as such.
Who needs exempt test compliance?
For policies issued by non-Canadian companies, compliance with the exempt test rests with the policy owner. If the policy is found to be non-exempt, the policy is subject to taxation on investment gains.
Anyone subject to Canadian taxation, who owns a non-Canadian life insurance policy, is responsible for exempt test compliance.
If the policy is found to be non-exempt, a calculation of the ACB will also be necessary to determine the taxable income of the policy.
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