How is the tax calculated

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Question - Harry purchased $25,000 of segregated fund units in June 2016 with a 75% maturity guarantee and a 100% guarantee at death. When Harry suddenly died in January 2021, the units were only worth $21,000 due to the economic consequences of the pandemic. As a result, Harry's beneficiary will receive the $21,000 remaining in Harry's account and the insurance company will also pay a death benefit equal to $4,000 (the difference between the guaranteed amount and the current value). How is the tax calculated that Harry's beneficiary will owe to the Canada Revenue Agency?

Tax will be payable on 100% of the death benefit amount

Tax will be payable on 75% of the death benefit amount

Tax will be payable on 50% of the death benefit amount

There will be no tax payable

Reference no: EM133131311

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