Final answer:
Nevin has undertaken a partial surrender of his permanent life insurance policy, resulting in a taxable policy gain of $50,000, which he must include in his income for tax purposes.
Step-by-step explanation:
The transaction Nevin has undertaken is a partial surrender of his permanent life insurance policy. This is determined by the fact that he has withdrawn a specific amount from the cash surrender value (CSV) of his policy, which has led to a taxable policy gain. As the policy had a CSV of $200,000 and an Adjusted Cost Base (ACB) of $100,000, withdrawing $150,000 exceeds the ACB by $50,000, which is the amount Nevin is having to include as taxable income. If it were a collateral or policy loan, there would be no immediate taxable event. A complete withdrawal would entail cashing out the entire policy, not just a portion.
To elaborate, the CSV is the amount that accrues within a permanent life insurance policy and can be accessed by the policyholder, in this case, Nevin. The ACB is the cost of the policy for tax purposes. When an amount greater than the ACB is withdrawn from a policy, the excess is treated as income for tax purposes. Therefore, by withdrawing $150,000 from his life insurance policy, where the CSV is $200,000 and the ACB is $100,000, Nevin is left to report $50,000 as income due to the partial surrender of the policy.