4 March 2002 External T.I. 2002-0117495 - DISABILITY INSURANCE-RETURN OF PREMIUM

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:

Is the partial return of premiums, which were originally paid for by the policyholder, to the policyholder under an individual disability insurance contract taxable to the policyholder?

Position:

A refund of a premium under an individual disability insurance contract would not be required to be included in a policyholder's income unless the policyholder in computing income previously deducted such premium.

Reasons:

If the policyholder has not previously deducted such premium then the return of the premium is simply a return of a personal living expense.

XXXXXXXXXX 							2002-011749
								Shaun Harkin, CMA
March 4, 2002

Dear XXXXXXXXXX:

Re: Technical Interpretation Request: Individual Disability Insurance

This is in reply to your facsimile of January 9, 2002 wherein you ask us to confirm your view that the return of premiums to a policyholder is not taxable to the policyholder when the following conditions exist:

a) the premiums are paid under an individual disability insurance contract;

b) the premiums are paid for by the individual policyholder;

c) the policyholder would be able to choose a plan that returns 50% of all premiums paid less 100% of any disability benefits received or 62.5% of all premiums paid less 100% of any disability benefits received;

d) the return of premiums would occur when the disability insurance contract expires or the policyholder decides to discontinue the coverage prior to the contract expiry date.

Written confirmation of the consequences 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. If, however, the particular transactions are partially completed or completed, the enquiry should be addressed to the relevant Tax Services Office. Notwithstanding the foregoing, we are providing the following comments.

Our Comments

It is our view that, in the situation you described, the refund or return of the premiums would not be required to be included in the policyholder's income unless the policyholder previously deducted such premiums in computing income.

The foregoing comments represent our general views with respect to the subject matter. As indicated in paragraph 22 of Information Circular 70-6R4, the above comments do not constitute an income tax ruling and accordingly are not binding on the Canada Customs and Revenue Agency. Our practice is to make this disclaimer in all instances in which we provide an opinion.

We trust the above comments are of assistance.

Yours truly,

Steve Tevlin
for Director
Partnerships Section
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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