While a resident of the Netherlands, the taxpayer acquired (in 1994) a policy to secure a mortgage on a house. The policy included a life insurance component pursuant to which the taxpayer paid monthly premiums that accumulated tax-free over the term of the policy. The taxpayer emigrated to Canada in 2009, the house was sold in 2019 and the taxpayer received a lump sum amount from the issuer on the policy maturity in 2023.
CRA noted that since the policy did not constitute a "life insurance policy in Canada" as defined in s. 138(12), i.e., it was issued while the insured was not resident in Canada, ss. 128.1(1)(b) and (c) applied on the taxpayer's immigration to Canada so that the cost base to him of the policy was equal to its fair market value upon entering Canada. Accordingly, such fair market value cost would be taken into account for the purposes of computing any accrual under s. 12.2(1) (based on any excess of the accumulating fund over the ACB). However, the policy could qualify as an exempt policy notwithstanding the non-resident issuer. Upon maturity of the policy, a policy gain would be computed in the usual manner. Whether the policy was an exempt policy and the amounts used to compute the policy gain could be determined only on the basis of information in the accounts of the foreign issuer.