9 May 2001 External T.I. 2001-0080245 - LONG-TERM DISABILITY BENEFITS

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: Are long-term disability benefits being received taxable? Would a lump-sum payment to cash out the policy from which the disability benefits are being received be taxable?

Position: Current benefits and lump-sum payment seem to be taxable.

Reasons: From information submitted, it seems that the policy premiums for the insurance in respect of the disability plan were paid by the recipient’s former employer.

XXXXXXXXXX 2001-008024
J. E. Grisé
May 9, 2001

Dear XXXXXXXXXX:

Re: Long-term Disability benefits

This is in reply to your letter of April 16, 2001, concerning the taxable nature of benefits from a long-term disability plan.

Your client is presently receiving benefits from XXXXXXXXXX (the insurance company) pursuant to a group insurance policy between your client’s former employer and the insurance company. You wish to obtain a ruling as to the taxable nature of the benefits she is currently receiving from the insurance company. In addition, you have indicated that the insurance company has offered to cash out the policy.

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 submitted in the manner set out in Information Circular 70-6R4. The following comments are, therefore, of a general nature only.

Paragraph 6(1)(f) of the Income Tax Act (the Act) provides that amounts received on a periodic basis by an employee or ex-employee as compensation for loss of income from an office or employment, that were payable under a disability insurance plan to which the employer made a contribution, are to be included in income, but subject to a reduction as specified in that paragraph for contributions made by the employee to the plan after 1967. It is a question of fact as to whether or not an employer has contributed to a particular plan. However, page 36 of the document you sent us seems to indicate that the premiums were to be paid by your client’s employer and, thus, the benefits would be taxable.

You may wish to consult our Interpretation Bulletin IT-428, Wage Loss Replacement Plans, for further information concerning the application of paragraph 6(1)(f) of the Act. In particular, please refer to paragraph 11, which states our position that a lump-sum payment in lieu of periodic payments that would otherwise be taxable will be considered to be income under paragraph 6(1)(f) of the Act.

We hope our comments are helpful.

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

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