2 February 2005 External T.I. 2005-0112781E5 - Critical Illness Insurance

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.

Principal Issues: Whether critical illness insurance is sickness insurance under the laws of British Columbia.

Position: Unable to provide an opinion.

Reasons: A determination as to the status of such a critical illness insurance plan under the laws of British Columbia would have to be made by the Deputy Superintendent of Insurance.

Randy Hewlett, B.Comm.

XXXXXXXXXX 613-941-7239
2005-011278
February 2, 2005

Dear XXXXXXXXXX:

Re: Employee Benefits - Critical Illness Insurance

We are writing in response to your e-mail of January 25, 2005, wherein you asked for clarification of the opinion we expressed on the taxable status of a critical illness group insurance policy (our file 2004-010549).

In our letter, we expressed the following opinion on the taxable status of the critical illness insurance plan:

Subparagraph 6(1)(a)(i) of the Income Tax Act (the "Act") excludes from a taxpayer's income the value of benefits derived from the contributions of the taxpayer's employer to or under a "group sickness or accident insurance plan". The term group sickness or accident insurance plan is not defined in the Act and therefore, its meaning would generally be interpreted in the context of legislation that regulates the insurance industry in the relevant jurisdiction. On the basis that the policy you described is considered a group sickness or accident insurance plan under the pertinent legislation, it is our view that payment of the premiums by the employer (Division 1) would not constitute a taxable benefit for employees by virtue of subparagraph 6(1)(a)(i) of the Act. Further, it is also view that the payment of lump-sum benefits under the policy in the event of a critical illness (either Division 1 or 2) would not be taxable under the Act.

In your e-mail, you indicated that the laws of the province of British Columbia govern the critical illness insurance plan in question because the employer and all employees reside there. The Insurance Classes Regulation in British Columbia defines "sickness insurance" as "insurance against loss resulting from the illness or disability of a person and against expenses incurred for dental care, other than illness or disability or dental care arising from accident, but does not include disability insurance". You expressed concern that a critical illness insurance plan may not be sickness insurance because payment of a benefit under the policy is not dependent on the "occurrence of a loss" and therefore, payment of the premium may result in a taxable benefit under paragraph 6(1)(a) of the Act.

As discussed in our telephone conversation (Hewlett/XXXXXXXXXX, January 31, 2005), we are unable to provide you with a definitive opinion on whether the critical illness insurance plan you described is "sickness insurance" under British Columbia legislation. However, we agree with your view that should the plan not be considered sickness insurance under the laws of British Columbia the payment of the premiums by the employer will likely result in a taxable benefit for employees. We have contacted the Insurance Department of the British Columbia Financial Institutions Commission and were informed that they have not previously considered whether sickness insurance includes critical illness insurance benefits paid without the occurrence of a loss. For a determination as to the status of such a critical illness insurance plan under the laws of British Columbia, you should contact:

Deputy Superintendent of Insurance
Financial Institutions Commission
1900 - 1050 West Pender Street
Vancouver, BC V6E 3S7

We trust our comments will be of assistance to you.

Yours truly,

John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch