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Orla's participating policy was issued in 2012. She has paid $30,000 of premiums in total. The insurer's records show a cumulative net cost of pure insurance of $12,500, and she has received $2,000 of dividends in cash, none of which was taxable. She has never taken a loan. What is her adjusted cost basis?
The s. 148(9) formula adds premiums paid and subtracts, among other things, the net cost of pure insurance and proceeds of earlier dispositions, which include cash dividends: $30,000 − $12,500 − $2,000 = $15,500. $17,500 forgets the cash dividends, $28,000 forgets the net cost of pure insurance, and $30,000 assumes the cost basis is simply the premiums paid. Because the net cost of pure insurance keeps growing, the cost basis usually falls over time. Source: Income Tax Act, RSC 1985, c. 1 (5th Supp.), s. 148(2)(a) and 148(9) 'adjusted cost basis' (B, H and L) (current to 21 Sep 2026; as at 12 Oct 2026).
Assuming a policy's adjusted cost basis equals the premiums paid.
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