CRA notes the practical difficulties faced by an immigrant to Canada holding a life insurance policy

CRA noted that a non-resident who immigrated to Canada while holding a policy, with a life insurance component, to secure a mortgage on a house would not be able to himself compute whether the policy was an exempt policy and what the policy gain would be when the policy matured in his hands as a Canadian resident, as the necessary information would be in the hands of the foreign issuer of the policy.

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), if the policy was not an exempt policy.

Neal Armstrong. Summary of 27 January 2025 Internal T.I. 2024-1025011I7 under s. 12.2(1).