Section 12.5 — Income Tax Act: Definitions

The definitions in this section apply for the purposes of this section and section 20.4. base year of an insurer means the insurer’s taxation year that immediately precedes its transition year. ( année de base ) insurance business of an insurer, is an insurance business carried on by the insurer, other than a life insurance business. ( entreprise d’assurance ) reserve transition amount of an insurer, in respect of an insurance business carried on by it in Canada in its transition year, is the positive or negative amount determined by the formula A – B where A is the maximum amount that the insurer would be permitted to claim under paragraph 20(7)(c) (and that would be prescribed by section 1400 of the Regulations for the purpose of paragraph 20(7)(c)) as a policy reserve for its base year in respect of its insurance policies if the generally accepted accounting principles that applied to the insurer in valuing its assets and liabilities for its transition year had applied to it for its base year, and section 1400 of the Regulations were read in respect of the insurer’s base year as it reads in respect of its transition year; and B is the maximum amount that the insurer is permitted to claim under paragraph 20(7)(c) as a policy reserve for its base year. ( montant transitoire ) transition year of an insurer means the insurer’s first taxation year that begins after September 2006. ( année transitoire ) There shall be included in computing an insurer’s income for its transition year from an insurance business carried on by it in Canada in the transition year, the positive amount, if any, of the insurer’s reserve transition amount in respect of that insurance business. If an amount has been deducted under subsection 20.4(2) in computing an insurer’s income for its transition year from an insurance business carried on by it in Canada, there shall be included in computing the insurer’s income, for each particular taxation year of the insurer that ends after the beginning of the transition year, from that insurance business, the amount determined by the formula A × B/1825 where A is the amount deducted under subsection 20.4(2) in computing the insurer’s income for the transition year from that insurance business; and B is the number of days in the particular taxation year that are before the day that is 1825 days after the first day of the transition year. If an insurer has, in a winding-up to which subsection 88(1) has applied, been wound-up into another corporation (referred to in this subsection as the “parent”), and immediately after the winding-up the parent carries on an insurance business, in applying subsections (3) and 20.4(3) in computing the incomes of the insurer and of the parent for particular taxation years that end on or after the first day (referred to in this subsection as the “start day”) on which assets of the insurer were distributed to the parent on the winding-up, the parent is, on and after the start day, deemed to be the same corporation as and a continuation of the insurer in respect of any amount included under subsection (2) or deducted under subsection 20.4(2) in computing the insurer’s income from an insurance business for its transition year, any amount included under subsection (3) or deducted under subsection 20.4(3) in computing the insurer’s income from an insurance business for a taxation year of the insurer that begins before the start day, and any amount that would —

in the absence of this subsection and if the insurer existed and carried on an insurance business on each day that is the start day or a subsequent day and on which the parent carries on an insurance business —

be required to be included or deducted, in respect of any of those days, under subsection (3) or 20.4(3) in computing the insurer’s income from an insurance business; and the insurer is, in respect of each of its particular taxation years, to determine the value for B in the formulas in subsections (3) and 20.4(3) without reference to the start day and days after the start day. If there is an amalgamation (within the meaning assigned by subsection 87(1)) of an insurer with one or more other corporations to form one corporation (referred to in this subsection as the “new corporation”), and immediately after the amalgamation the new corporation carries on an insurance business, in applying subsections (3) and 20.4(3) in computing the new corporation’s income for particular taxation years that begin on or after the day on which the amalgamation occurred, the new corporation is, on and after that day, deemed to be the same corporation as and a continuation of the insurer in respect of any amount included under subsection (2) or deducted under subsection 20.4(2) in computing the insurer’s income from an insurance business for its transition year; any amount included under subsection (3) or deducted under subsection 20.4(3) in computing the insurer’s income from an insurance business for a taxation year of the insurer that begins before the day on which the amalgamation occurred; and any amount that would —

in the absence of this subsection and if the insurer existed and carried on an insurance business on each day that is the day on which the amalgamation occurred or a subsequent day and on which the new corporation carries on an insurance business —

be required to be included or deducted, in respect of any of those days, under subsection (3) or 20.4(3) in computing the insurer’s income from an insurance business. Subsection (7) applies if, at any time, an insurer (referred to in this subsection and subsection (7) as the “transferor”) transfers, to a corporation (referred to in this subsection and subsection (7) as the “transferee”) that is related to the transferor, property in respect of an insurance business carried on by the transferor in Canada (referred to in this subsection and subsection (7) as the “transferred business”) and subsection 138(11.5) or (11.94) applies to the transfer; or subsection 85(1) applies to the transfer, the transfer includes all or substantially all of the property and liabilities of the transferred business and, immediately after the transfer, the transferee carries on an insurance business. If this subsection applies in respect of the transfer, at any time, of property the transferee is, at and after that time, deemed to be the same corporation as and a continuation of the transferor in respect of any amount included under subsection (2) or deducted under subsection 20.4(2) in computing the transferor’s income for its transition year that can reasonably be attributed to the transferred business, any amount included under subsection (3) or deducted under subsection 20.4(3) in computing the transferor’s income for a taxation year of the transferor that begins before that time that can reasonably be attributed to the transferred business, any amount that would —

in the absence of this subsection and if the transferor existed and carried on an insurance business on each day that includes that time or is a subsequent day and on which the transferee carries on an insurance business —

be required to be included or deducted, in respect of any of those days, under subsection (3) or 20.4(3) in computing the transferor’s income that can reasonably be attributed to the transferred business;

and in determining, in respect of the day that includes that time or any subsequent day, any amount that is required under subsection (3) or 20.4(3) to be included or deducted in computing the transferor’s income for each particular taxation year from the transferred business, the description of A in the formulas in those subsections is deemed to be nil. If at any time an insurer ceases to carry on all or substantially all of an insurance business (referred to in this subsection as the “discontinued business”), and none of subsections (4) to (6) apply, there shall be included in computing the insurer’s income from the discontinued business for the insurer’s taxation year that includes the time that is immediately before that time, the amount determined by the formula A – B where A is the amount deducted under subsection 20.4(2) in computing the insurer’s income from the discontinued business for its transition year; and B is the total of all amounts each of which is an amount included under subsection (3) in computing the insurer’s income from the discontinued business for a taxation year that began before that time. If at any time an insurer that carried on an insurance business ceases to exist (otherwise than as a result of a winding-up or amalgamation described in subsection (4) or (5)), for the purposes of subsections (8) and 20.4(4), the insurer is deemed to have ceased to carry on the insurance business at the earlier of the time (determined without reference to this subsection) at which the insurer ceased to carry on the insurance business, and the time that is immediately before the end of the last taxation year of the insurer that ended at or before the time at which the insurer ceased to exist.