25 June 2003 External T.I. 2001-0090165 - ACCIPENTAL DEATH & DISMEMBER 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 CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues:

1. Whether employer paid premiums relating to a group accidental death and dismemberment insurance plan are a taxable benefit to an employee.

2. Whether the receipt of benefits under the group accidental death and dismemberment insurance plan will be included in computing taxable income of the recipient.

3. Whether the answer to the above two questions is any different when the insured is the spouse or common-law partner of the employee.

Position: 1. No.

2. Question of fact.

3. Question of fact.

Reasons:

1. Excluded under subparagraph 6(1)(a)(i) of the Act.

2. Amounts received in respect of accidental dismemberment are not included in income, amounts received as a "disability payment" are included in income under paragraph 6(1)(f)) and amounts received as a death benefit are included in income under 56(1)(a)(iii)).

3. May be excluded because of wording of 6(1)(a) and 6(1)(f) of the Act where the recipients are not employees.

2001-009016
XXXXXXXXXX A. Seidel
(613) 957-2058
June 25, 2003

Dear XXXXXXXXXX:

Re: Group Sickness and Accident Plan

This is in reply to your letter dated June 26, 2001 in which you requested our views on certain issues related to the taxation of employees entitled to benefits under an employer funded group accidental death and dismemberment insurance plan. We apologize for the delay in responding.

The particular circumstances in your letter on which you have asked for our views appear to be a factual situation involving a specific taxpayer. As explained in Information Circular 70-6R5, it is not this Directorate's practice to comment on transactions involving specific taxpayers other than in the form of an advance income tax ruling. To the extent that you require confirmation of the tax consequences of proposed transactions, you should be requesting an advance income tax ruling. However, we would point out that advance income tax rulings are not provided in respect of transactions that are substantially completed. The tax consequences of completed transactions can only be determined after a review of all of the relevant facts and documentation, which is the responsibility of the Verification and Enforcement Division of the local tax services office.

Although we cannot provide any specific comments with respect to the situation described in your letter, the following general comments may be of assistance.

In general, a group accidental death and dismemberment insurance plan will qualify as a group sickness or accident insurance plan as described in subparagraph 6(1)(a)(i) of the Income Tax Act (the "Act") where two or more employees are covered under such a plan. Any benefit derived by an employee from the contribution by his or her employer to or under such a group sickness or accident insurance plan would not result in a taxable benefit to the employee by virtue of the exception in subparagraph 6(1)(a)(i) of the Act. The employer's contributions to such a plan are generally considered to be "made or incurred for the purpose of gaining or producing income" from the business and are therefore deductible in computing the income of the business. Lump sum amounts received by an employee, or his/her designated beneficiary, in respect of accidental dismemberment, for example, will not be included in computing the income of the recipient.

However, there may be situations where benefits payable on a periodic basis, to an employee or a designated beneficiary, pursuant to an accidental death and dismemberment insurance plan, are included in the employee's/beneficiary's income. Where such payments to an employee are in respect of the loss of all or any part of the employee's income from an office or employment, the amount received by the employee would be required to be included in computing the employee's income pursuant to paragraph 6(1)(f) of the Act.

Pursuant to subsection 248(1) of the Income Tax Act (the "Act"), "death benefit" "means the total of all amounts received by a taxpayer in a taxation year on or after the death of an employee in recognition of the employee's service in an office or employment minus" certain amounts. The amount of a death benefit would be included in computing the income of a taxpayer for a taxation year pursuant to paragraph 56(1)(a)(iii) of the Act. Whether or not an amount received pursuant to an accidental death and dismemberment insurance policy would be received in recognition of an employee's service is a question of fact that can only be determined at the time that a payment is received by a taxpayer. Payments that are payable as a lump sum, and are not considered to be a death benefit, are not included in computing the income of the recipient.

A group accidental death and dismemberment insurance plan is not considered to be a group term life insurance policy such that subsection 6(4) of the Act would not apply.

Yours truly,

John Oulton
for Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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