Following the termination of a group term life insurance policy for the benefit of retired employees, their former employer (Taxpayerco):
(1) may decide to pay, to the estate of the retiree or specifically designated beneficiaries, an equivalent amount ("lump sum") to the death benefit initially provided for in the abandoned group life insurance policy; or
(2) may decide to pay the lump sum directly to a retiree prior to the retiree’s death.
Respecting the first scenario, CRA stated:
[T]he definition of [death benefit] … is broad enough to include the lump sum that Taxpayerco proposes to pay on the death of a retiree. Such a benefit is to be included in income under subparagraph 56(1)(a)(iii).
Respecting the second scenario, CRA stated:
[A]ny amount paid to a retiree by Taxpayerco should be included in computing the retiree’s income under either section 5 or section 6 … [as] the payment … arises necessarily from the retiree’s employment with Taxpayerco.