Principal Issues: 1- Is a supplemental insurance offered to a group of two persons a group plan?
2- Are the premiums paid by the employer a taxable benefit?
Position: 1Possibly, yes.
2- Question of fact.
Reasons: 1- Past positions.
2- Past positions.
XXXXXXXXXX 2018-074482 E. Paquin
February 19, 2025
Dear Ms. XXXXXXXXXX,
Subject: Taxable benefit – group insurance plan
This is in response to your fax in which you asked us for information regarding the tax treatment of a corporation's payment of premiums for supplementary disability insurance on behalf of two of its executive employees. One of those employees is the majority shareholder of the corporation.
More specifically, you wish to know whether that supplementary disability insurance constitutes a group insurance plan and whether a premium paid by the employer is a taxable benefit to the two individuals who benefit from it.
You also specified that the corporation already offers group insurance (life, health and disability) to all its employees, with the premiums being paid entirely by the employees. We have assumed that that is a group health or accident insurance plan.
Unless otherwise indicated, all statutory references are to provisions of the Income Tax Act (footnote 1) (the “Act”).
Our Comments
This technical interpretation provides general comments about the provisions of the Act and related legislation. 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 IC70-6R12, Advance Income Tax Rulings and Technical Interpretations.
Group insurance plan
An employer may contribute to various different types of insurance plans that are aimed at various groups or categories of employees. For example, an employer may decide to set up one plan for office staff and another plan for a particular trade. Furthermore, the Canada Revenue Agency (the CRA) has indicated that an insurance plan can qualify as a group insurance plan if it covers two or more employees.
However, in a case such as the one under review, obtaining additional disability insurance on behalf of the two managerial employees does not in itself constitute the establishment of a group insurance plan. It may also be a contract for individual disability insurance acquired for the benefit of each of the two managerial employees.
The Act does not define what a plan is. However, the CRA has indicated that a plan generally refers to an agreement between an employer and its employees that provides for the payment of benefits to an employee who suffers losses due to illness, maternity or accident. The reference to a group sickness or accident insurance plan refers, among other things, to a disability insurance plan. In addition, a plan may include one or more insurance contracts that can be purchased from one or more insurers. An insurance policy in itself is therefore not a plan per se, but rather a component of it.
Furthermore, the CRA considers that, for an individual disability insurance policy to be a component of a group insurance plan, it must be determined whether the level of benefits and the ratio of contributions to the plan shared by the employer and the employee are similar to those of the other employees covered by the same plan. For example, if the corporation had taken out an additional disability insurance policy that provided a higher level of benefits for the employee who is the majority shareholder compared to the level of benefits for the other employee in the group, such a policy would probably not be considered a component of a group insurance plan, but rather an individual disability insurance policy.
An examination of the agreements between the parties, including the insurance policy contracts, will be useful to you in determining whether or not the additional disability insurance taken out by the corporation for its two managerial employees constitutes a group insurance plan.
Taxable benefit
You also wish to know whether the premium paid by the corporation for the supplementary disability insurance is a taxable benefit to the two individuals who benefit from it.
Generally, an insurance premium that an employer pays for the benefit of an employee is taxable to the latter as a benefit received in the course of an office or employment pursuant to paragraph 6(1)(a) of the Act, unless it comes within one of the exceptions provided in subparagraph 6(1)(a)(i). This includes, among other things, contributions paid by the employer to a group sickness and accident insurance plan.
Thus, if the premiums for the supplementary disability insurance acquired by the corporation are paid under a group sickness and accident insurance plan, no benefit is to be included in computing the employment income of the two employees concerned under paragraph 6(1)(a). However, it should be noted that the premiums will be included in the employees' income, under paragraph 6(1)(e.1), if the plan provides for the payment of lump sums or benefits that are not intended to compensate for the loss of employment income.
In your letter, you stated that one of the two executive employees is also the majority shareholder of the corporation. The question of whether a benefit is granted to an individual by virtue of their status as an employee or shareholder is a question of fact to which the CRA can only respond on a case-by-case basis.
In general, unless the facts indicate otherwise, it is assumed that an employee shareholder receives benefits or allowances in their capacity as a shareholder if they can significantly influence the policies of the corporation. That presumption can be rebutted in the following cases:
- all employees of the corporation are entitled to the benefit or allowance;
- the employees are all shareholders or related to a shareholder, and the benefit or allowance is comparable (in nature and amount) to the benefits and allowances generally offered by corporations of the same size to non-shareholder employees whose services and responsibilities are similar.
In the situation described, only the two executive employees benefited from the supplementary disability insurance policy. If that benefit had been granted to them because of their status as shareholders or contemplated shareholders, the premium paid by the corporation would then constitute a taxable benefit to the two individuals under subsection 15(1). For the purposes of subsection 15(1), a contemplated shareholder is a person to whom a benefit is conferred by the corporation because they are being considered to become a shareholder of the corporation.
We hope that you find our comments useful.
Best regards, XXXXXXXXXX
Nancy Deslandes, CPA, CGA
Manager
Business and Employment Income Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
FOOTNOTES
Due to the requirements of our systems, the footnotes contained in the original document are reproduced below:
1 R.S.C. 1985 (5th Supp.), c.1, as amended.