Principal Issues: The taxable status of a critical illness group insurance policy.
Position: If the policy is group sickness or accident insurance plan, payment of the premiums by the employer does not constitute a taxable and payment of lump-sum benefits under the policy in the event of a critical illness would not be taxable.
Reasons: Subparagraph 6(1)(a)(i) of the excludes from a taxpayer's income the value of benefits derived from the contributions of the taxpayer's employer to or under a "group sickness or accident insurance plan". The term group sickness or accident insurance plan is not defined in the Act and therefore, its meaning would generally be interpreted in the context of legislation that regulates the insurance industry in the relevant jurisdiction. The above-noted tax treatment applies where the policy is a group sickness or accident insurance plan under the pertinent legislation.
Randy Hewlett, B.Comm.
XXXXXXXXXX 613-941-7239
2004-010549
January 14, 2005
Dear XXXXXXXXXX:
Re: Employee Benefits - Critical Illness Insurance
We are writing in response to your letter of November 26, 2004, wherein you requested our opinion on the taxable status of a critical illness group insurance policy.
You enclosed with your letter a copy of the insurance policy. You indicated that the policy provides for two levels of coverage for employees, as follows:
? Division 1: mandatory coverage of $25,000 per employee. The premiums for this level of coverage are 100% employer paid.
? Division 2: additional optional coverage up to a maximum of $200,000 for employees and their spouses. The premiums for this level of coverage are 100% employee paid.
You inquired as to the taxable status of the premiums paid by the employer and the benefits that may be paid to the employees under the policy in the event of a critical illness.
Our Comments
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 Tax Services Office. However, we are prepared to offer the following comments.
Subparagraph 6(1)(a)(i) of the Income Tax Act (the "Act") excludes from a taxpayer's income the value of benefits derived from the contributions of the taxpayer's employer to or under a "group sickness or accident insurance plan". The term group sickness or accident insurance plan is not defined in the Act and therefore, its meaning would generally be interpreted in the context of legislation that regulates the insurance industry in the relevant jurisdiction. On the basis that the policy you described is considered a group sickness or accident insurance plan under the pertinent legislation, it is our view that payment of the premiums by the employer (Division 1) would not constitute a taxable benefit for employees by virtue of subparagraph 6(1)(a)(i) of the Act. Further, it is also our view that the payment of lump-sum benefits under the policy in the event of a critical illness (either Division 1 or 2) would not be taxable under the Act.
We trust our comments will be of assistance to you.
Yours truly,
John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch