Where a taxpayer repays a policy loan and is thereby entitled to a deduction under s. 60(s) that exceeds the taxpayer’s income for the year, is such excess amount unavailable for deduction in any other taxation year? In responding negatively regarding its conclusion that “such excess amount cannot be deducted by the taxpayer in any other taxation year,” CRA stated:
In general terms, a policyholder includes in income, under paragraph 56(1)(j) and subsection 148(1) of the Act, a policy gain resulting from a disposition of an interest in a life insurance policy that is a policy loan. Paragraph 60(s) of the Act permits a deduction in a taxation year for the total of all repayments made in the year in respect of a policy loan. The amount deductible under paragraph 60(s) of the Act is restricted to the amount by which the policy gain included in income under subsection 148(1) of the Act in respect of the policy loan exceeds the amounts deductible in previous taxation years in respect of the policy loan repayments. No carry forward is available under paragraph 60(s) of the Act in respect of a policy loan repayment. …
Subject to certain exceptions under subsection 4(3) … subsection 4(2) … specifically denies the deduction of items in sections 60 to 64 … in determining income from a particular source. Consequently, a deduction allowed under paragraph 60(s) … is not tied to a particular source … .
The amount determined under paragraph 3(c) … which forms variable F of the “non-capital loss” definition in subsection 111(8) … will never be negative, and therefore deductions described in Subdivision E of the Act cannot create or increase the amount of a non-capital loss.