Principal Issues: Taxation of employer-paid premiums for life insurance.
Position: General information provided.
Reasons: Question of fact.
XXXXXXXXXX 2009-031217 Michael Cooke April 30, 2009
Dear XXXXXXXXXX :
Re: Taxable Benefits - Employer-paid Premiums for Life Insurance
This is in response to your e-mail correspondence of February 24, 2009, regarding the taxability under the Income Tax Act (the "Act") of employer-paid premiums for life insurance.
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, "Advance Income Tax Rulings", dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant Canada Revenue Agency ("CRA") Tax Services Office. A list of TSOs is available on the "Contact Us" page of the CRA's website as well as copies of any publications mentioned herein. Notwithstanding the foregoing, we are prepared to offer the following general comments.
Subject to certain exceptions, paragraph 6(1)(a) of the Act requires that the value of any benefits received or enjoyed by a taxpayer in the year in respect of, in the course of, or by virtue of an office or employment be included in the taxpayer's income from employment. The broad wording of this provision means that a taxable benefit may exist where there is any connection between the particular payment or benefit and the particular office or employment.
The taxation results for an employee whose employer provides life insurance coverage depends on the nature of that coverage. An employee whose life is insured under a "group term life insurance policy" by his or her employer is required by subsection 6(4) of the Act to include a benefit in income. Where subsection 6(4) of the Act applies, the amount of the benefit to be included in the employee' income is prescribed by sections 2700-2705 of the Income Tax Regulations. The term "group term life insurance policy" is defined in subsection 248(1) of the Act to mean a group life insurance policy under which the only amounts payable by the insurer are amounts payable on the death or disability of an individual whose life is insured in respect of, in the course of or because of, his or her office or employment or former office or employment and policy dividends or experience rating refunds. This means that a term life insurance policy that insures the life of only one employee or the lives of the employee's spouse or other dependants (whether or not in conjunction with the life of the employee) would not be a group term life insurance policy for the purposes of the Act. Therefore, whether a particular policy qualifies as a group term life insurance policy is a question of fact that can only be determined on a case-by-case-basis.
Where the policy does not qualify as a group term life insurance policy the amount of the employer-paid premiums would be required to be included in the particular employee's income as a taxable employment benefit pursuant to paragraph 6(1)(a) of the Act. For information on calculating the benefit for group term life insurance policies please refer to Chapter 3 of T4130, "Employers' Guide: Taxable Benefits."
In response to your inquiry regarding Interpretation Bulletin IT-85R2, "Health and Welfare Trusts for Employees" dated July 31, 1986, we confirm that this Bulletin discusses the taxation of various employer-provided benefits that may be provided under a health and welfare trust, an employee benefit plan or an employee trust. However, we would like to point out that the comments contained in paragraph 9 of IT-85R2 concerning the income tax implications to an employee for employer-provided group term life insurance no longer reflect the current state of the law.
We trust the above comments are of assistance.
Yours truly,
Renée Shields
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch