Principal Issues: Is the payment of professional liability insurance premiums a taxable benefit? If the employer reimburses past years, do they need to amend the T4? What if the employee claimed a deduction under 8(1)(i)(i)?
Position: Question of fact.
Reasons: If the employer is the primary beneficiary of the payment, the amount is not included in the employee’s income.
March 17, 2016
Sylvie Désilets HEADQUARTERS Senior Labour Relations Advisor Income Tax Rulings Directorate Human Resources Branch A. Ryer 395 Terminal Avenue 613-970-9038 Building Trainyards, Floor 7 Ottawa ON K1A 0L5 2015-060893
Professional liability insurance premiums
We are writing in response to your e-mail enquiry, dated September 14, 2015, regarding the tax treatment of professional liability insurance premiums (Insurance Premiums) of certain employees (Employees) that are reimbursed by their employer (Employer) XXXXXXXXXX pursuant to the terms of their collective agreement. Beginning in XXXXXXXXXX, the Employer will be reimbursing the Employees for the annual cost of the Insurance Premiums. In addition, the Employer will be reimbursing the Employees for Insurance Premiums the Employees paid in prior years, XXXXXXXXXX under the collective agreement.
The Employees must obtain the professional liability insurance in order to maintain their membership in a professional organization. You have advised that the Employer reimburses the Employees’ annual professional membership dues and that the Employer considers itself to be the primary beneficiary of the payment of those dues. As such, the Employer does not include the reimbursement of the annual professional membership dues in the Employees’ income from employment as a taxable benefit.
You have asked whether the reimbursement of the Insurance Premiums is a taxable benefit under the Income Tax Act (Act), whether the Employer is obligated to amend the Employees’ T4s for prior years, and about the tax consequences for Employees who deducted the Insurance Premiums in a prior year.
Our Comments
Subject to a number of exceptions, paragraph 6(1)(a) of the Act includes in employment income the value of benefits “of any kind whatever” that are received or enjoyed by an employee in connection with his or her office or employment. In general, the payment or reimbursement of expenses on behalf of an employee is a taxable benefit, except where the employer is the primary beneficiary.
In the case of professional membership dues, the employer is generally considered to be the primary beneficiary of the payment or reimbursement of such dues where membership in that particular professional organization or association is a condition of employment. Where there is no formal job requirement that an employee be a member of the particular professional organization or association, the employer may still be the primary beneficiary depending on the circumstances.
The determination of who is the primary beneficiary of a payment is always a question of fact; it is the employer’s responsibility to determine whether the primary beneficiary is the employer or the employee. In situations where (1) the payment of professional liability insurance premiums is necessary to maintain professional membership and (2) it has already been determined that the employer is the primary beneficiary of the payment of that membership, it is likely that the employer is also the primary beneficiary of the payment of the mandatory insurance premiums.
In this case, if the Employer concludes that it is the primary beneficiary of the payment for the Insurance Premiums, then there is no requirement to include the reimbursement of those Premiums in the Employees’ income from employment under paragraph 6(1)(a) of the Act, nor is it necessary to amend any T4s. However, if the Employer concludes that it is, in fact, not the primary beneficiary of the payment of the Insurance Premiums, then the reimbursement of those Premiums should be included in the Employees’ income from employment under paragraph 6(1)(a) of the Act and reported on T4s in the year the reimbursements are made.
Certain annual professional membership dues (and insurance premiums required to maintain those memberships) may be deducted by an employee under subparagraph 8(1)(i)(i) of the Act. However, this provision only permits an employee to deduct such amounts if he or she has not been reimbursed and is not entitled to be reimbursed for the expenses. Where the Employees were entitled to be reimbursed under the terms of their collective agreement, a deduction under subparagraph 8(1)(i)(i) is not permitted. If the Employees deducted the Insurance Premiums in computing their income in a prior year, they should request adjustments to their prior year tax returns. Where appropriate, a request for an adjustment may be made using Form T1-ADJ, Adjustment Request.
Unless exempted, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency’s electronic library. After a 90-day waiting period, a severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. You may request an extension of this 90-day period. The severing process removes all content that is not subject to disclosure, including information that could reveal the identity of the Employer and Employees.
We trust these comments will be of assistance to you.
Sincerely,
Nerill Thomas-Wilkinson, CPA, CA
Manager
Business and Employment Income Section
Business and Employment Division
Income Tax Rulings Directorate