CRA indicates that a life insurance policy’s sale to an employee for less than FMV could produce a s. 6(1)(a) benefit even where the employer’s payment of premiums had been taxable

An employer (Opco) acquires a term life insurance policy on the life of an arm’s-length key employee, whose estate or spouse is designated as beneficiary. The annual premium is paid by the corporation and included in the employee’s income as a taxable benefit. Upon its renewal, the policy is transferred to the employee for no consideration under s. 148(7), whereupon the employee starts paying the annual premiums.

Given that the key employee has been including the annual premium in income as a s. 6(1)(a) benefit, does a further benefit arise on such transfer of the policy to the individual for no consideration?

CRA indicated that s. 6(1) “may apply to include in the income of the individual the amount by which the fair market value of the policy exceeds any actual consideration paid by the individual for the policy.”

CRA went on to indicate that where “the person on whom the benefit has been conferred is both a shareholder and an employee … a determination will have to be made … as to whether the benefit was conferred by the corporation on the person as a shareholder or as an employee.”

Neal Armstrong. Summary of 3 May 2022 CALU Roundtable Q. 8, 2022-0928871C6 under s. 6(1)(a).