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.
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. CRA will assume any foreign policy is non-exempt unless it can be demonstrated that is is exempt. For this, actuarial support is needed.
Anyone subject to Canadian taxation, who owns a non-Canadian life insurance policy, is responsible for exempt test compliance.
A calculation of the Adjusted Cost Basis (ACB) will also be necessary, and is included in the exempt test report.
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