Principal Issues: What is the tax treatment of premiums paid by an employer for an accidental death and dismemberment insurance plan in favor of some of its employees?
Position: Taxable benefit since 2013 under 6(1)(e.1).
Reasons: Subsection 6(1)(e.1) essentially provides that an employee must, since 2013, include in computing his or her income from an office or employment the total of all amounts contributed in his or her respect by his or her employer in the year to a group sickness or accident insurance plan.
XXXXXXXXXX I. Landry, M. Fisc
2016-067929
June 12, 2017
Dear Sir,
Subject: Accidental death and dismemberment insurance
This is in response to your letter of December 5, 2016 in which you inquired as to the tax treatment of premiums paid by XXXXXXXXXX ("Employer") for an accidental death and dismemberment plan ("Insurance Coverage") for some of its employees.
The facts submitted can be summarized as follows. The Insurance Coverage applied in theory to all countries (except Canada). However, for cost control reasons, the Employer required Insurance Coverage only for employees traveling or assigned to high-risk areas ("Employees"). We understand that the Insurance Coverage was provided by a single insurance policy that covered all Employees.
In order to identify high-risk areas, factors such as crime, terrorism, extremism and political instability are taken into consideration. The employer reassesses the list of these areas on a regular basis. Currently, the Employer considers the high risk areas to be XXXXXXXXXX ("High Risk Areas").
The Employer requires Insurance Coverage for all Employees, whether or not they have a personal life insurance policy or a disability and accidental death insurance policy and whether or not their policy, if any, covers their death or disability while working in one of the High Risk Areas.
You indicated that without the Insurance Coverage, the Employees would refuse to work in the High Risk Zones. Since XXXXXXXXXX, the Employer has treated the Insurance Coverage as a taxable benefit to be included in the computation of the Employees' income.
Finally, you indicated that you are of the opinion that the Insurance Coverage primarily benefits the Employer.
All legislative references are to the provisions of the Income Tax Act.
Our Comments
This technical interpretation provides general comments on the provisions of the Act and related legislation, where referenced. It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R7, Advance Income Tax Rulings and Technical Interpretations.
Under paragraph 6(1)(e.1), an employee is required, from 2013 onwards, to include in the computation of the employee’s income the total of all amounts contributed in the year in respect of the employee by the employee’s employer to a group sickness or accident insurance plan, except to the extent that the contributions are attributable to benefits under the plan that, if received by the employee, would be included in the employee’s income under paragraph (f) in the year the benefits are received if that paragraph were read without regard to subparagraph 6(1)(f)(v).
Paragraph 6(1)(e.1) therefore applies to premiums or contributions paid by an employer to a group sickness or accident insurance plan unless it relates to an income insurance benefit payable on a periodic basis (a non-lump sum).
With respect to the concept of "group … insurance plan", we are of the view that a plan by virtue of which a number of employees (two or more) are insured under a policy between the insurer and an employer is a group insurance plan.
Regarding the term "group … insurance plan”, the latter is not defined in the Act. Nevertheless, we are of the view that this term includes, in particular, accidental death and dismemberment insurance plans. Therefore, if the Insurance Coverage is a group insurance plan, we are of the view that the total amounts paid by the Employer in respect of an employee during a year of Insurance Coverage is to be included in computing the employee's income from an office or employment under paragraph 6(1)(e.1).
Finally, you state that the Insurance Coverage primarily benefits the Employer. This consideration is not relevant for the purposes of paragraph 6(1)(e.1).
Best regards,
Michel Lambert, CPA, CA, M. Fisc.
Manager
Employment Income Section
Business and Employment Income Division
Income Tax Rulings Directorate
Legislative Policy and
Regulatory Affairs Branch