Sun Life 2015 Annual Report Download - page 105

earned from these contracts is described in the Premium and Fee Income Recognition accounting policy section of this Note. Deferred
acquisition costs are described under the Other Assets accounting policy section of this Note. Where the cost of meeting the
obligations of the contract exceed the economic benefits expected to be received under it, a provision is recognized in other liabilities.
Segregated Funds
Segregated funds are products for which we issue a contract where the benefit amount is directly linked to the fair value of the
investments held in the particular segregated fund. Although the underlying assets are registered in our name and the segregated fund
contract holder has no direct access to the specific assets, the contractual arrangements are such that the segregated fund
policyholder bears the risks and rewards of the fund’s investment performance. In addition, certain contracts include guarantees from
us. We derive fee income from segregated funds, which is included in Fee income in our Consolidated Statements of Operations.
Policyholder transfers between general funds and segregated funds are included in Net transfer to (from) segregated funds in our
Consolidated Statements of Operations. Deposits to segregated funds are reported as increases in segregated funds liabilities and are
not reported as revenues in our Consolidated Statements of Operations.
Investments for Account of Segregated Fund Holders
Investments for account of segregated fund holders are recorded separately from the Total general fund assets in our Consolidated
Statements of Financial Position and are carried at fair value. Fair values are determined using quoted market values or, where quoted
market values are not available, estimated fair values as determined by us.
Insurance Contracts for Account of Segregated Fund Holders
Insurance contracts for account of segregated fund holders are recorded separately from the Total general fund liabilities in our
Consolidated Statements of Financial Position. Insurance contracts under which the segregated fund holders bear the risks associated
with the underlying investments are classified as insurance contracts for account of segregated fund holders. The liabilities reported as
insurance contracts for account of segregated fund holders are measured at the aggregate of the policyholder account balances.
Changes in the fair value of the invested assets of the segregated funds are recorded in net realized and unrealized gains (losses)
within the segregated fund and are not recorded in our Consolidated Statements of Operations.
Other assets and liabilities associated with these insurance contracts, such as origination costs and the liabilities associated with
guarantees provided by us, are included in general fund liabilities in Insurance contract liabilities in our Consolidated Statements of
Financial Position.
Investment Contracts for Account of Segregated Fund Holders
Investment contracts for account of segregated fund holders are recorded separately from the Total general fund liabilities in our
Consolidated Statements of Financial Position. Investment contracts under which the segregated fund holders bear the risks
associated with the underlying investments are classified as investment contracts for account of segregated fund holders. The liabilities
reported as investment contracts for account of segregated fund holders are measured at the aggregate of the policyholder account
balances.
Other liabilities associated with these investment contracts, such as onerous contract provisions required for service components, are
included in general fund liabilities in Investment contract liabilities in our Consolidated Statements of Financial Position.
Income Taxes
Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or
paid to the taxation authorities. Deferred income tax is provided using the liability method on temporary differences at the statement of
financial position date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.
Current and deferred income tax relating to items recognized, in the current or previous period, in OCI or directly in equity is
accordingly recognized in OCI or equity and not in our Consolidated Statements of Operations. Interest and penalties payable to
taxation authorities are recorded in Operating expenses in our Consolidated Statements of Operations.
Deferred income tax assets and liabilities are calculated based on income tax rates and laws that are expected to apply when the
liability is settled or the asset is realized, which are normally those enacted or considered substantively enacted at our Consolidated
Statements of Financial Position dates. Deferred income tax assets are recognized for all deductible temporary differences, carry
forward of unused tax credits and unused tax losses to the extent that it is probable that future taxable profit will be available against
which these assets can be utilized. At each reporting period, we assess all available evidence, both positive and negative, to determine
the amount of deferred income tax assets to be recognized. The recognition of deferred income tax assets requires estimates and
significant judgment about future events, such as projections of future taxable profits, based on the information available at the
reporting date.
The determination of the required provision for current and deferred income taxes requires that we interpret tax legislation in the
jurisdictions in which we operate. For each reporting period, our income tax provision reflects our best estimate, based on the
information available at the reporting date, of tax positions that are under audit or appeal by relevant tax authorities. To the extent that
our estimate of tax positions or the timing of realization of deferred income tax assets or liabilities are not as expected, the provision for
income taxes may increase or decrease in the future to reflect the actual experience.
Deferred income tax is provided on temporary differences arising on investments in subsidiaries, joint ventures and associates, except
where we control the timing of the reversal of the temporary difference and it is apparent that the temporary difference will not reverse
in the foreseeable future. No deferred income tax asset or liability is recognized in relation to temporary differences that arise from the
initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, did not
affect either the accounting profit or taxable profit or loss. Deferred income tax assets and deferred income tax liabilities are offset if a
legally enforceable right exists to set off current tax assets against current tax liabilities, the deferred income taxes relate to the same
taxable entity and the same taxation authority and we intend either to settle on a net basis, or to realize the asset and settle the liability
simultaneously.
Notes to Consolidated Financial Statements Sun Life Financial Inc. Annual Report 2015 103