Rudolph Meyer v. Minister of National Revenue, [1977] CTC 2581, 77 DTC 413

The Chairman:—These are the appeals of Rudolph Meyer from income tax assessments in respect of the 1971, 1972, 1973 and 1974 taxation years.

The issue to be determined here is whether the amounts of $331.02 for each of the years under appeal paid by an employer as premiums toward an insurance against disability or loss due to injury or sickness of the appellant constitutes a benefit received by the appellant and is taxable in his hands as income.

Facts

An agreed statement of facts was reached by the parties to the appeals and consisted principally in paragraphs 2 to 8 of the allegations of facts contained in the respondent’s reply to the notice of appeal which reads:

STATEMENT OF ALLEGATIONS OF FACTS

2. On March 25, 1971, the Appellant made an application to the Dominion Life Assurance Company of Waterloo, Ontario for a sickness and accident insurance policy.

3. On May 1, 1971, the Appellant incorporated a company known as R & M Heating Ltd, a company carrying on a heating and plumbing business in Edmonton, whose shareholders were the Appellant and his wife.

4. On May 1, 1971, an insurance policy no 587,629 was issued by Dominion Life Assurance Company to the Appellant.

5. On May 27, 1971, a sickness and accident insurance trust agreement was entered into between R & M Heating Ltd, called the Employer, and the Appellant and his wife, as Trustees, and the Dominion Life Assurance Company as the Insurer. The purpose of the trust agreement [was] stated to be for the carrying out of the terms and conditions of the alleged Employees Sickness and Accident Plan of R & M Heating Ltd.

6. On the same date of the trust agreement, the Appellant executed an assignment and signed all his rights, title and interest in the insurance policy no 587,629 to the trustees of the Employees Sickness and Accident Insurance Plan.

7. In addition, on May 27, 1971, the Appellant and his wife as trustees signed a “direction and authorization’ agreement to authorize the insurance company to pay all amounts due in accordance with the terms of the policy no 587,629 to the Appellant or his estate or his designated beneficiary.

8. An “Ownership Endorsement” dated June 2, 1971 was also signed by the Trustees and Dominion Life Assurance Company under which it was agreed by the parties that the policy no 587,629 cannot be assigned to anyone other than the person insured, namely the Appellant.

It was also admitted that at all material time R & M Heating Ltd had only one employee, the appellant.

Submissions

Counsel for the appellant contends that the Board must make a distinction between “a group sickness or accident insurance plan" and a sickness or accident insurance policy and submits that the Sickness and Accident Insurance Trust Agreement entered into between R & M Heating Ltd, Rudolph Meyer and Irmgarde Meyer and Dominion Life Assurance Company dated May 27, 1971 (Exhibit A-2) established an insurance plan. It named the trustees for the plan and provided for the coverage of additional employees of R & M Heating Ltd. Counsel submits that such a plan meets the requirements of the exceptions set out in paragraph 6(1 )(a) of the Income Tax Act, SC 1970-71-72, c 63, as amended. Counsel for the appellant also referred to subparagraph 6(1)(f)(i) by which amounts received by a taxpayer from a sickness or accident insurance p/an must be included in computing his income and suggests that the important words are “insurance plan’’ rather than an individual insurance policy to which the respondent refers in his reply to notice of appeal, paragraphs 12 and 13:

B. THE STATUTORY PROVISIONS UPON WHICH THE RESPONDENT RELIES AND THE REASONS WHICH HE INTENDS TO SUBMIT

12. The Respondent submits that the policy of insurance under which R & M Heating Ltd paid the premium, was not a group sickness or accident insurance plan within the meaning of the provisions of paragraph 6(1)(a) of the new Income Tax Act.

13. The Respondent further submits that the contract of insurance, known as policy 587,629 was not a contract that provided for the insurance of a number of persons individually and therefore the payment of the insurance premium by R & M Heating Ltd was a benefit received by the Appellant from his company.

Counsel for the appellant then cites a decision of Mr Justice Cattanach then of the Exchequer Court in the appeal of Donald J Plumb v MNR, [1964] CTC 228 at 231; 64 DTC 5145 at 5147, in which the learned judge states:

I am of the view that the words “group insurance” have an ordinary and popular meaning which involves a contract that provides for the insurance of a number of persons individually. A typical example is a contract between an insurer and an employer providing for the insurance of employees of the employer.

Counsel suggests that the trust agreement was the only way employees of smaller companies could benefit from the exceptions of paragraph 6(1 )(a) and even though one person may not form a group, one person can be part of a plan. Counsel concludes that the Sickness and Accident Insurance Trust Agreement entered into in fact established a plan which meets the requirements of the principles set out by Mr Justice Cattanach in the Plumb case (supra) and that the exceptions to paragraph 6(1)(a) should apply in the instant appeals.

Counsel for the respondent referred to subsection 6(1) and paragraph 6(1 )(a) of the Income Tax Act which read:

Amounts to be included as income from office or employment

6. (1) There shall be included in computing the income of a taxpayer for a taxation year as income from an office or employment such of the following amounts as applicable:

(a) Value of benefits.—the value of board, lodging and other benefits of any kind whatever (except the benefit he derives from his employer’s contributions to or under a registered pension fund or plan, group sickness or accident insurance plan, private health services plan, supplementary unemployment benefit plan, deferred profit sharing plan or group term life insurance policy) received or enjoyed by him in the year in respect of, in the course of, or by virtue of an office or employment;

Counsel for the respondent suggests that the word “group” in the phrase “group sickness or accident insurance plan” in paragraph 6(1)(a) cannot easily be overlooked and contends that what is before the Board is not a group plan but an individual accident and sickness insurance policy (Exhibit A-1) covering the only employee in the company.

Counsel for the respondent cited The Alberta Insurance Act, RSA 1970, chapter 187, clause 322(i) of Part 8, which reads:

(i) “group insurance’’ means insurance other than creditor’s group insurance and family insurance, whereby the lives or well-being or the lives and wellbeing, of a number of persons are insured severally under a single contract between an insurer and an employer or other person;

Counsel for the respondent submits that the facts of the present appeals show clearly that there exists no group insurance plan. but only an ordinary insurance policy and therefore does not come within the requirements of paragraph 6(1 )(a) of the Income Tax Act which must be interpreted restrictively. Counsel concludes that payment by the appellant’s employer toward insurance policy No 587,629 whose beneficiary was the appellant was a benefit received by the appellant from his company and was rightly included by the respondent in computing the appellant’s income.

Finding of Facts

Whether, as suggested by counsel for the appellant, the Sickness and Accident Insurance Trust Agreement (Exhibit A-2) can be interpreted as having established an insurance plan in R & M Heating Ltd or not. it cannot, in my opinion, have created a group insurance plan. Although the agreement may have sought to provide for the participation of other employees to the would-be group insurance plan at some indefinite future time, if ever, the only facts the Board can consider in this appeal are:

1. The appellant had applied for and was issued an ordinary sickness and accident policy No 587.629 before incorporating R & M Heating Ltd.

2. R & M Heating Ltd had and still has only one employee, the appellant.

3. The Sickness and Accident Insurance Trust Agreement, the assignment, the direction and ownership document and the endorsement included in Exhibit A-2 dealt only with policy No 587.629 pertaining specifically to the appellant.

4. Policy No 587,629 does not mention group insurance, it is not a master policy or contract providing for the insurance of a number of eligible persons individually as The Alberta Insurance Act requires and it is not group insurance as described by Mr Justice Cattanach in the Plumb case (supra).

5. The nature of a trust is such that it is very doubtful if it can be used as a legal vehicle to establish a group insurance plan when both the policies and the employees are, as yet, non-existent.

6. Even if one could conclude that a sickness and accident insurance plan existed in R & M Heating Ltd that plan, in my opinion, cannot be considered as a group insurance plan within the meaning of the exception of paragraph 6(1 )(a) of the Income Tax Act when there is but one employee involved.

For these reasons the exceptions of paragraph 6(1 )(a) do not apply to the facts of these appeals and the insurance premiums paid by the employer in the pertinent taxation years are benefits received by the appellant and taxable under subsection 6(1) of the Income Tax Act.

The appeals are therefore dismissed.

Appeal dismissed.