The taxable income arising when a life insurance policy is disposed of (surrendered, partially surrendered, or borrowed against beyond ACB), calculated as...
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The taxable income arising when a life insurance policy is disposed of (surrendered, partially surrendered, or borrowed against beyond ACB), calculated as proceeds of disposition minus the policy's adjusted cost basis. Per s.148(1) of the Income Tax Act, 100% of a policy gain is included in income — distinct from a capital gain where only a portion is included. Life insurance policies are specifically excluded from being "capital property" under s.39(1)(a)(iii). Important implication: surrendering a long-held corporate-owned policy can produce substantial taxable income; keeping the policy until death avoids the policy gain entirely because death benefit proceeds are specifically excluded from the disposition definition.
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