New Regulatory Capital Framework and Taxation of Non-resident Life InsurersRelease Date: 11/22/2017 Staff Reference: Noeline Simon
Submission to Department of Finance
November 22, 2017
Mr. Brian Ernewein
Department of Finance
140 O’Connor Street
Ottawa, ON K1A 0G5
Re: New Regulatory Capital Framework and Taxation of Non-resident Life Insurers
We are writing to you in connection with a new capital adequacy guideline under the Insurance Companies Act for federally regulated life insurance companies, Life Insurance Capital Adequacy Test (or “LICAT”), issued by the Office of the Superintendent of Financial Institutions (“OSFI”). The LICAT will come into effect on January 1, 2018 and will replace the previous guideline, Minimum Continuing Capital and Surplus Requirements (or “MCCSR”).
Our Request for Technical Amendments
Under the new LICAT guideline, the capital adequacy test for a non-resident life insurer that operates in Canada through a branch will be significantly different than it was under the MCCSR. This will affect solvency returns filed with OSFI for 2018 and thereafter and may affect quarterly financial statements for March 2018 and thereafter.
Unless technical amendments are made to the Income Tax Regulations (the “Regulations”), the new capital adequacy test under LICAT will, in effect, include certain elements of the non-resident life insurer’s capital twice in its income tax base under the Income Tax Act (Canada) (the “ITA”).
On behalf of our non-resident life insurance company members, the CLHIA requests that, for the 2018 and subsequent taxation years, subparagraph (b)(ii) of the “attributed surplus” definition in subsection 2400(1) of the Regulations be amended as set out in the Appendix to this letter to ensure consistency with LICAT.