According to the LLQP Segregated Funds and Annuities curriculum, the taxation of segregated funds depends on whether the contract is held in a registered or non-registered account. In this case, Rose and Louis hold the segregated fund in a non-registered account, which means withdrawals and maturity proceeds are subject to taxation.
For non-registered segregated funds, the LLQP study materials clearly state that taxation at maturity is treated the same as a redemption. When the contract matures, the insurer redeems the units at their current market value. The taxable amount is calculated by comparing the market value of the units at maturity to their adjusted cost base (ACB). The difference between these two values results in either a capital gain or a capital loss.
Importantly, only the gain or loss portion is taxable or deductible — not the entire amount received. This is why Option A is correct. The capital gain is calculated as:
Market value at redemption (or maturity) minus the adjusted cost base of the units.
If the result is positive, a capital gain occurs; if negative, a capital loss occurs.
Options B and C are incorrect because they assume that the entire amount received is taxable, which contradicts LLQP taxation principles. Option C is especially incorrect because segregated funds do not pass through income types (interest, dividends, capital gains) at maturity in non-registered accounts the way mutual funds do annually. Instead, income is taxed as it is allocated each year, and maturity triggers a capital disposition only.
Option D is incorrect because income is not fully assessed as regular income; only capital gains or losses are recognized at maturity based on ACB.
The LLQP curriculum emphasizes the importance of understanding ACB adjustments, especially when partial withdrawals have occurred, as these affect the remaining ACB used at maturity. Therefore, under LLQP-approved taxation rules, the correct and fully verified answer is Option A.
