SMALL BUSINESS AND GENERAL DIVISION D.Y. Dalphy 957-2134 RE Group Term Life Insurance Policies
This is in reply to your memorandum of June 3, 1986, concerning life insurance policies (for employees) which include provisions for amounts payable upon the death of a dependent of the employee.
In our view, where, under a group term life insurance policy, an amount becomes payable in the event of the death of either an employee or his dependent, it is necessary to examine the terms of the particular contract of insurance to determine whether the coverage in respect of the employee and his dependent is provided for in the same policy. If both are found to be payable under the same policy, we are of the opinion that such a policy is not a "group term life insurance policy" as defined by subsection 248(1) of the Income Tax Act (the "Act"). We see this as the result where, under the terms of the policy, dependent coverage it automatic and is not acquired at the discretion of the employee.
However, certain plans (such as that appended to your memorandum of June 3, 1986) provide that dependent coverage shall be provided, but that it may or may of be selected by employees. Where the dependent coverage is optional and the premiums in respect of the employee and dependent coverage are accounted or separately (as though under separate policies), we are prepared to view the coverage in respect of dependents as not being coverage under a policy which would otherwise be considered a "group term life insurance policy". That is, a policy which provides for insurance in respect of employees would not be disqualified from being considered a "group term life insurance policy" only because there is a provision in the policy for optional dependent coverage. In such cases, we are of the opinion that the amount of the employer's contribution towards dependent coverage (i.e., the premium which is not in respect of a "group term life insurance policy") would constitute a taxable benefit to the employee pursuant to paragraph 6(1)(a) of the Act. The amount of insurance payable in the event of the dependent's death would not be taken into account in the determination of a benefit under subsection 6(4) of the Act.
We hope these comments will be of assistance.
ORIGINAL SIGNED BY ORIGINAL SIGNÉ PAR P.D. FUOCO for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch