JUL 15 1987
N.M. Sheerin (613) 957-2135 5-3307
Dear Sirs:
Re: Long-term disability (LTD) plan - Lump sum payable to survivor on death of employee
This is in reply to your letter of April 27, 1987 concerning the income tax treatment of a lump sum amount payable to a survivor of an individual who had been receiving long-term disability benefits that were taxable pursuant to paragraph 6(1)(f) of the Income tax Act ("the Act").
In your example, the wording of the applicable provision for disability contracts where this benefit exists is as follows:
"If a member dies while he is receiving the monthly disability benefit, we will pay his survivor an amount equal to three times the member's monthly disability benefit payment, provided all the following conditions are met:
1) the member has received monthly disability benefit payments for at least 180 days, and
2) the member has a survivor, as defined below.
"Survivor" means the member's spouse, or if he does not have a spouse, the member's children under age 25."
In our opinion, this type of payment (net of any employee contribution not deducted by the employee under subparagraph 6(1)(f)(v) of the Act prior to his death) would be taxable as income of the recipient and would be considered a "death benefit" within the meaning of subsection 248(1) and subparagraph 56(1)(a)(iii) of the Act.
In this connection, we refer you to paragraph 22 of Interpretation Bulletin IT-428 , a copy of which is enclosed for your information.
It is also our opinion that this type of payment would not be a "right or thing" within the meaning of subsection 70(2) of the Act. Our understanding is that this payment only becomes payable as a result of the death of the employee; it is not an amount which the employee during his lifetime is entitled to receive. In the circumstances, it is our view that the amount would not have been payable to the employee at the date of death and therefore would not be a right or thing subject to the provisions of subsection 70(2) of the Act.
We trust these comments will be of assistance to you. Yours truly,
ORIGINAL SIGNED BY
for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch
Enclosure