Tax Court Rejects Claimant's Appeal on Taxation of Returned Life Insurance Premiums

Docket: 2025-3657(IT)I BETWEEN: [NAME], Appellant, and HIS [NAME], Respondent . Appeal heard on July 10, 2026, at Vancouver, British Columbia Before: The [NAME] : For the Appellant: [redacted] Counsel for the Respondent: [redacted]

JUDGMENT The appeal of the reassessment of the Appellant’s 2023 taxation year is dismissed. As the Respondent is not seeking costs, none are awarded. Signed this 14th day of July 2026. “[NAME]” [NAME]. Citation: 2026 TCC 135 Date: 20260714 Docket: 2025-3657(IT)I BETWEEN: [NAME], Appellant, and HIS [NAME], Respondent.

REASONS FOR

JUDGMENT [NAME]. [ 1 ] [NAME] purchased a term life insurance policy from [NAME] in 2003. The policy matured in 2023. On maturity, pursuant to the terms of the policy, [NAME] paid [NAME] an amount equal to the total of all of the monthly premiums that he had paid over the 20 year term of his policy. Those premiums totalled $10,529.20. [1] [ 2 ] When the policy matured, [NAME] issued [NAME] a T5 indicating that he had earned $10,529.20 in investment income. [NAME] did not receive the T5 slip so he did not report that income when he filed his 2023 tax return. [ 3 ] The Minister of National Revenue eventually reassessed [NAME] on the basis that he needed to include the $10,529.20 in his income. [NAME] has appealed that reassessment. [ 4 ] Paragraph 56(1)(j) of the Income Tax Act requires taxpayers to include in their income any amount required to be included under subsection 148(1). Subsection 148(1), in turn, requires taxpayers to include in their income an amount equal to the proceeds of disposition they receive from the disposition of their interest in a life insurance policy less the adjusted cost basis of that policy. [ 5 ] Under subsection 148(9), a taxpayer is considered to have disposed of a life insurance policy when the policy matures. Therefore, [NAME] is considered to have disposed of his policy in 2023. He received proceeds of disposition of $10,529.20. The only question is what [NAME]’s adjusted cost basis of the policy was. [ 6 ] Subsection 148(9) sets out a very complicated formula for determining the adjusted cost basis of a policy. Item “B” in the formula adds the $10,529.20 in premiums that [NAME] paid to [NAME]. If this were the only relevant component of the calculation, [NAME] would not have to report any income as his adjusted cost basis would be equal to his proceeds of disposition. However, paragraph (a) of item “L” in the adjusted cost basis formula reduces his adjusted cost basis by the “net cost of pure insurance” . That term is defined in another formula found in section 308 of the Income Tax Regulations . [ 7 ] As the Federal Court of Appeal stated in [NAME] v. [NAME] “…the net cost of pure insurance is determined based in part on the probability that an individual with the same relevant characteristics as the person whose life is insured…will die in a particular year.” [2] [ 8 ] The Reply sets out the assumptions of fact that the Minister made in reassessing [NAME]. The assumptions say nothing about the adjusted cost basis of [NAME]’s policy or about his net cost of pure insurance. [ 9 ] Justice Spiro dealt with a similar situation in [NAME] v. The Queen . [3] He found that, in the absence of an assumption of fact regarding the adjusted cost basis, the taxpayer must win. Respectfully, I find that the Federal Court of Appeal’s decision in [NAME] v. The Queen [4] (issued after Justice Spiro heard [NAME] ) requires me to reach a different conclusion. [ 10 ] [NAME] does not explicitly allege in his notice of appeal that his net cost of pure insurance was nil, he is clearly asserting that as a material fact. The only way that the $10,529.20 in proceeds that he received could be tax-free would be if his adjusted cost basis was $10,529.20. In the circumstances, the only way that his adjusted cost basis could be $10,529.20 would be if his net cost of pure insurance was nil. Therefore, [NAME] must be alleging that as a material fact. [ 11 ] [NAME] makes it clear that the taxpayer bears the burden of proving the facts that they need to receive the tax treatment they are seeking. [ADDRESS] specifically states that “the absence in a notice of appeal of material facts that would be required to support the tax return as filed should not result in any burden being shifted to the Minister in relation to such material facts” . [ 12 ] In other words, the fact that [NAME] did not explicitly plead that his net cost of pure insurance was nil does not mean that, in the absence of an assumption of fact to the contrary, the Respondent has to prove that his net cost of pure insurance was at least $10,529.20. The net cost of pure insurance being nil is the sole material fact that [NAME] is relying on. It is up to him to show on a balance of probabilities that it was nil. I find that he has not done so. [ 13 ] While I found [NAME] to be a credible witness, his belief that the return of premiums that he received should not be taxable is not proof that his net cost of pure insurance was nil. [ 14 ] It is not surprising that [NAME] has been unable to show that his net cost of pure insurance was nil. [NAME] did not pay [NAME] $10,529.20 over 20 years simply for the privilege of getting his own money back. He bought life insurance. There was a cost to that insurance. [NAME] had the benefit of that life insurance for 20 years. Included in his purchase was the right to have his premiums returned to him at maturity. However, it is simply impossible that the insurance component cost nothing. [ 15 ] I certainly understand [NAME]’s confusion. The [NAME] policy does not make it clear that the return of premiums will be taxable. [ 16 ] I suspect that a very small component of [NAME]’s monthly premium must have been a payment for the right to receive his premiums back. However, with no evidence how much that was, my suspicions are not enough for [NAME] to meet his burden. [ 17 ] It would have been very helpful if [NAME] had provided [NAME] with its calculations of his adjusted cost basis including his net cost of pure insurance. However, in the absence of such calculations, the best evidence that I have of those figures is the fact that [NAME] issued a T5 stating that [NAME] had $10,529.20 in investment income. [ 18 ] Based on all of the foregoing, I must dismiss [NAME]’s appeal. Signed this 14th day of July 2026. “[NAME]” [NAME]. CITATION: 2026 TCC 135 COURT FILE NO.: 2025-3657(IT)I STYLE OF CAUSE: [NAME] v. HIS [NAME] OF HEARING: Vancouver, British Columbia DATE OF HEARING: July 10, 2026

REASONS FOR

JUDGMENT BY: The [NAME] OF

JUDGMENT: July 14, 2026 APPEARANCES: For the Appellant: [redacted] Counsel for the Respondent: [redacted] COUNSEL OF RECORD: For the Appellant: [redacted] n/a Firm: n/a For the Respondent: [redacted] Ottawa, Canada [1] There is a discrepancy of $4.40 between the premiums paid and the amount [NAME] returned to [NAME]. The difference is immaterial to the issue before me. [2] 2023 FCA 42, at para. 13. [3] 2020 FCA 93. [4] 2020 FCA 93.