2007 Annual Meeting ● Assemblée annuelle 2007 Vancouver 2007 Annual Meeting ● Assemblée annuelle 2007 Vancouver Canadian Institute of Actuaries Canadian Institute of Actuaries L’Institut canadien des actuaires L’Institut canadien des actuaires

Taxes and 3855 Implications of CICA Handbook Section Financial Instruments on Future Income and Alternative Taxes: Update to Fall Letter (Educational Note) 2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007

Taxes and 3855 Fall Letter, section 10: … this change may create additional tax timing differences … … this accounting standards change is not effective for 2006 year-end statements... … however the opening balance sheet for 2007 reporting would be restated 2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007

Taxes and 3855 Fall Letter, section 10: … an industry proposal has been made to the Department of Finance but no formal response has been received … caution would be used in projecting any favourable tax timing results Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007

Taxes and 3855 On December 28, Finance issued a press release and backgrounder … CLIFR views this document as a formal response but not a substantially enacted tax change In many cases, a continuation of the current tax regime results in a reduction in the company's tax related liabilities relative to those established on a pre-3855 basis 2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007

Taxes and 3855 The actuary would consider that the intent of Finance is to revise the tax regime on a revenue neutral basis across the industry … would exercise caution before reducing liabilities Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007

Taxes and 3855 Discuss with accountants Use consistent treatment No double counting The actuary would make sure that the sum of the accounting and the actuarial provisions make sense 2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007

Taxes and 3855 The actuary may consider testing the impact of the Finance proposal New temporary difference from existing net deferred gains New temporary difference from differences between statement and tax values of assets (spread over a 5-year period) Pre-1996 business: difference in reserves over a 5-year period 2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007

Taxes and 3855 Post-1995 business: impact of 3855 creates a new difference in reserves over a 5-year period but offset by the same effect on the assets There will continue to be differences after 5 years (ex: dividends, non- deductibility of IIT, deferred realized gains, IBNR, …) 2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007

Taxes and 3855 Discussions between CLHIA and Finance CLHIA response on March 30 Propose to have a longer amortization period for the difference of reserves on pre-1996 business if the 5-year period has a major impact on the company (MTAR - STAR) > 25% Equity To be continued Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007

3855 and Taxes CLIFR is closely following the evolution of this topic The committee has no intention of changing its guidances until a tax change has been substantially enacted The actuary would therefore use the same basis in 2007 as the opening balance on January 1, Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007