Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues: - Sickness or accident insurance coverage provided to the only employee/shareholder of a professional corporation. Subparagraph 6(1)(a)(i) of the Income Tax Act provides an exemption for a "group sickness or accident insurance plan." In order for a group to exist, must there be more than one individual?
Position: Yes - Some general comments were also provided on the issue of "qua shareholder" versus "qua employee."
Reasons: Our current position is that a "group" must be comprised of more than one individual.
XXXXXXXXXX 2000-005514
M. Eisner
January 9, 2001
Dear XXXXXXXXXX:
Re: Accident and Sickness Insurance Coverage
This is in reply to your letter of June 19, 2000, concerning the above-subject.
You have indicated that you have a number of clients who own professional corporations. Each client is the only employee of his or her corporation. The professional corporations proceed on the basis that the payment of premiums in respect of disability insurance coverage involves a "group sickness or accident insurance plan" for the purposes of subparagraph 6(1)(a)(i) of the Income Tax Act (the "Act"). An example of such a situation occurs where a lawyer's corporation pays the lawyer's "group" disability insurance premium. In addition, the corporation pays the premium for the employee's "private" disability insurance coverage.
If, in the above situation, the above two payments are each made under a group sickness or accident insurance plan, you have indicated that the periodic payments made to the lawyer under either insurance plan would be taxable under paragraph 6(1)(f) of the Act. However, you have asked us for our views on whether a plan which covers only one employee would be considered a group plan.
Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request. However, we are prepared to provide the following comments, which are general in nature and are not binding on the Agency.
The following comments have been made on the assumption that a professional corporation is carrying on a professional practice (See paragraphs 1 and 2 of enclosed IT-189R2, "Corporations Used by Practising Members of Professions").
In the case where an individual is both an employee and a shareholder, it is a question of fact whether a benefit has been conferred on the individual in the capacity of a shareholder or in the capacity of an employee. However, where a benefit is granted to such an individual, the benefit will be presumed to have been conferred upon him or her by reason of being a shareholder, unless the benefit is comparable in nature and quantum to benefits generally offered to employees who perform similar services and have similar responsibilities for other employers of a comparable size.
Where benefits in respect of disability insurance coverage are conferred on an individual in his or her capacity as a shareholder, those benefits are taxed in the individual's hands pursuant to subsection 15(1) of the Act and the exception under subparagraph 6(1)(a)(i) of the Act does not apply. In addition, the related expense would not be deductible in computing the corporation's income since the payment is not incurred by the corporation for the purposes of gaining or producing income from a business or property as required under paragraph 18(1)(a) of the Act.
We agree with you that a group sickness or accident insurance plan must cover at least two employees. Otherwise a group is not involved.
We trust that our comments are of assistance to you.
Yours truly,
John Oulton
for Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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