18 April 2000 External T.I. 1999-0015715 - GROUP TERM 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.

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: Is an amount paid by an employer to "pay off" the deficit under a group term life insurance policy a taxable benefit to the employees in the year paid by the employer?

Position: YES

Reasons: The Prescribed benefit and term Insurance benefit are found in Regulations 2701 and 2702. It appears that the calculation B Average Daily Cost of Insurance could include such a payment.

XXXXXXXXXX 1999-001571
C. Tremblay
Attention: XXXXXXXXXX

April 18, 2000

Dear XXXXXXXXXX:

Re: Group Term Life Insurance

This is in reply to your letter of December 28, 1999, wherein you requested us to clarify whether or not an amount paid by the employer to "pay off" or fund a deficit from a prior year under a policy of insurance (although the employer is not required to do so under the terms of the policy) becomes a taxable benefit to the employees. You have stated that the employer pays one hundred per cent (100%) of the premiums on a group term life insurance policy for its employees. We assume that the employer calculates the taxable benefit for its employees pursuant to the calculation in paragraph 2702(1)(b) of the Income Tax Regulations (the "Regulations").

Our Comments:

The situation described in your letter appears to be an actual fact situation and written confirmation of the tax implications inherent in proposed transactions are given by this Directorate only where the transactions are the subject of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R3. Where a completed transaction is involved the enquiry should be addressed to your local Tax Services Office. Consequently, we can only offer the following general comments.

Subsection 2701 of the Regulations prescribes, for the purposes of subsection 6(4) of the Income Tax Act, the amount of a taxpayer's benefit for a taxation year in respect of insurance under a group term life insurance policy. In general terms, the insurance benefit is equal to the amount of term insurance in force in the year times the average daily cost of insurance under the policy for the year. In our view, an amount paid by an employer to fund a deficit of a prior year under a group term life insurance policy is included as part of the calculation of the "average daily cost of insurance" pursuant to variable B of paragraph 2702(2)(a) of the Regulations since the premium is paid in the year in respect of periods in preceding years. The "average daily cost of insurance" then forms part of the calculation of the prescribed benefit pursuant to variable B of paragraph 2702(1)(b) of the Regulations.

Accordingly, in our view, an amount paid by an employer to fund a deficit under a group term life insurance policy will affect the computation of the benefit to the employees in the year it was paid.

We trust that these comments will be of assistance.

Yours truly,

Jim Wilson
for Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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