10 May 2002 External T.I. 2002-0134305 - TAXABILITY OF EMPLOYER PAID INS. 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 CCRA.

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

Principal Issues:

Whether or not "employer-paid insurance benefits are taxable, insurable and/or pensionable" in a specific situation.

Position:

General comments provided.

Reasons:

Question of fact. Employer is responsible to determine if a benefit is taxable and withholding is required. If there is doubt the employer should contact the TSO

XXXXXXXXXX 2002-013430

Randy Hewlett, B.Comm.

May 10, 2002

Dear XXXXXXXXXX:

Re: Taxability of Employer Paid Insurance Benefits

We are writing in response to your letter dated April 7, 2002, wherein you requested our opinion on whether or not "employer-paid insurance benefits are taxable, insurable and/or pensionable" in your specific situation.

You enclosed a copy of your plan entitled "Group Insurance Plan", which provides coverage for life insurance and medical benefits, such as prescription drugs, dental care, hospital stays etc. It is your understanding that "private health care plans do not constitute a taxable benefit however life insurance paid by the employer does." You also indicate that your employer calculates a taxable benefit of "$63.05 each pay and withholds Tax, CPP and EI from that amount." You ask our opinion on "what (if any) deductions should be withheld from the value of the benefit."

Our Comments

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R4, Advance Income Tax Rulings, dated January 29, 2001. Where the particular transactions are completed, the inquiry should be addressed to your local Tax Services Office. However, we offer the following comments.

Paragraph 6(1)(a) of the Income Tax Act (the Act) requires the value of board, lodging and other benefits of any kind whatever received or enjoyed by the taxpayer in the year in respect of, in the course of, or by virtue of an office or employment to be included in employment income for the year. Subparagraph 6(1)(a)(i) of the Act, however, specifically excludes from an employee's income the value of benefits derived from an employer's contributions to certain employer-sponsored arrangements. Included among these arrangements are group sickness or accident insurance plans, private health services plans, supplementary unemployment benefit plans, and group term life insurance policies.

With respect to a "group term life insurance policy", as defined in subsection 248(1) of the Act, subsection 6(4) may include an employment benefit in income in respect of the employer's contribution. The benefit under subsection 6(4) of the Act is calculated in accordance with Part XXVII of the Income Tax Regulations (the Regulations), and in general terms, will only result in a taxable benefit when the coverage on the employee's life is greater than $25,000.

When an employer pays an employee's salary, wages or other remuneration, or provides taxable benefits to an employee, subsection 153(1) of the Act requires the employer to withhold amounts for income tax under the Act, insurable earnings under the Employment Insurance Act and pensionable earnings under the Canada Pension Plan Act. The correct amount of withholding is determined under prescribed rules in Part I of the Regulations.

In view of the fact that the employer is responsible under the Act for withholding the appropriate amount from the employee's remuneration, we suggest you discuss the matter with your employer if there is doubt as to whether the benefit you receive is taxable or the amount of withholding is accurate.

We trust our comments will be of assistance to you.

Yours truly,

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