Except with respect to one proposal in respect of policy reserves for segregated life insurance policies, most of the changes to section 138 of the Act and Part XIV of the Income Tax Regulations are clarifying changes or changes made to repeal obsolete provisions. The same is true for changes made to Part XXIV of the Income Tax Regulations. The other changes proposed are essentially those expected as a result of past comfort letters and draft legislation. Some of the changes are the result of submissions made by members of the industry. There are no surprises.
The only change from a previous proposal that is worth noting is to Section 1406 of the Income Tax Regulations. That regulation was proposed to be amended, as set out in the March 16, 2011 draft legislation, to reverse the impact of the decision of the Federal Court of Appeal in Canada v. National Life Assurance Company of Canada, 2008 FCA 14. Although the original proposal achieved that intended result, the original proposal created some unintended uncertainty with regards to other matters, in particular, with regards to whether reserves for guaranteed benefits under segregated fund life insurance policies could be denied by the regulation as proposed to be amended. Submissions were made by the life insurance industry to seek revisions to the proposal to eliminate that uncertainty and clarify other aspects of the regulation.
The revised proposal, as now set out in the NWMM, should eliminate that uncertainty and clarifies other matters, consistent with the industry’s submissions. In particular, as set out in the Explanatory Notes accompanying the NWMM, it is now clear that reserves for guarantee benefits under segregated fund life insurance policies are permitted.