An employer (Opco) acquires a term life insurance policy on the life of a key employee with whom it deals at arm’s length. The employee’s estate, or a related person is designated as beneficiary. The annual premium is paid by the corporation and included in the employee’s income as a taxable benefit. Upon its renewal, the policy is transferred to the employee for no consideration under s. 148(7), whereupon the employee starts paying the annual premiums.
Given that the key employee has been including the annual premium amount in income as a s. 6(1)(a) benefit, does a further benefit arise on the transfer of the policy to the key employee for no consideration?
After noting that in 2019-0799051C6 it addressed a similar situation regarding a permanent policy, CRA stated:
In circumstances in which the person to which the interest in the policy was transferred to is an individual who is an employee or shareholder of the corporation which effected the transfer, either of subsections 6(1) or 15(1) of the Act may apply to include in the income of the individual the amount by which the fair market value of the policy exceeds any actual consideration paid by the individual for the policy.
CRA went on to indicate that where “the person on whom the benefit has been conferred is both a shareholder and an employee … a determination will have to be made … as to whether the benefit was conferred by the corporation on the person as a shareholder or as an employee.”