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Principal Issues: [TaxInterpretations translation] Can premiums paid for individual disability insurance policies taken out in respect of employees in the same group be said to be premiums paid in respect of a group sickness or accident insurance plan?
Position: It depends on the facts. It is necessary to determine whether there is a plan - an agreement between the employer and the employees or a group of employees. If there is a plan, it may include one or more insurance policies. However, in order to determine whether an individual policy is part of the group plan, the level of benefits provided by the policy and the ratio of premium payments as between the employer and the employee must be the same as for other employees, otherwise the individual policy will not be part of the plan.
Reasons: Previous positions.
August 28, 2006
Kim Scharfe
Policy Section and
Technical Services Income Tax Rulings Directorate
Policy Services and Sylvie Labarre
Legislative Research (613)957-8981
2006-017114
Subject: Salary insurance
This is in response to your memorandum of February 9, 2006, in which you asked for our opinion on the qualification of individual salary insurance policies as a group sickness or accident insurance plan.
You have forwarded to us the application of the representative of the managerial employees of XXXXXXXXXX who is claiming from the Canada Revenue Agency a refund of the tax paid on the amounts they had added to their income as a taxable benefit pursuant to paragraph 6(1)(a) of the Income Tax Act (the "Act") for the years 1995 to 2004 inclusive
The taxable benefit added to the employees' employment income was the premiums paid by the employer for each employee's disability insurance policy with XXXXXXXXXX Life Insurance Company.
The employer-sponsored policies are individual wage-loss insurance policies that provide for the payment of benefits in the event of incapacity for work due to illness or accident.
The employee representative indicated that the employer pays the full premium for each of the management employees and indicated that all management employees participate in this plan.
The taxpayer's representative is of the view that the premiums were paid under a group sickness or accident insurance plan, in accordance with paragraph 8 of Interpretation Bulletin IT-428. The representative also cites two Canada Revenue Agency technical interpretations, # 9302035 of April 21, 1993 and # 9238025 of February 8, 1993, which he states confirm that a package of wage-loss insurance policies can constitute a group insurance plan. The representative concluded that since the employer assumed the same proportion of the premiums for each employee and all management employees participated in the plan, the requirements of the tax authorities are satisfied.
You wish to know whether you should treat the package of individual policies as a group sickness or accident insurance plan so that the premiums would not be taxable in the year of payment by the employer.
The fact that the employer has taken out individual disability insurance policies does not, in itself, prevent the premiums from being considered as having been paid under a group plan. That is because the insurance policy is not the plan itself but rather a component of the plan or part of it.
Rather, the plan is the agreement between an employer and its employees or a group or association of employees that provides for compensation to an employee for loss of employment due to illness or accident. A plan may comprise one or more insurance contracts which may be acquired either from a single insurer or from several.
To determine whether an individual disability insurance policy is part of a group sickness or accident insurance plan, it is necessary to determine whether the level of benefits and the ratio of contributions to the plan shared by the employer and the employee are similar to those of other employees covered by the plan.
In this situation, it appears that all management employees are covered by disability insurance and that the ratio of employer-paid premiums is the same for all of these management employees since it is 100% for all of them. However, we have no information on any agreement between the employer and the management employees, nor do we have any information on the level of benefits to which each management employee is entitled. That is an important element to determine. If an individual policy provides benefits to an employee that are not available to other employees in the group, such a policy would not be considered to have been issued under the group plan and any premium paid in respect of that policy would be a taxable benefit under paragraph 6(1)(a). You may therefore wish to seek further information in that regard.
With the information we have received, we cannot conclude that the employer contributes to a group plan. The technical interpretations referred to by the taxpayer clearly state that it is a question of fact whether individual insurance policies can be considered to be issued under a "group plan". It is also stated that an individual policy can only be considered to have been issued under a "group plan" if all employees covered by the plan are entitled to the same benefits under the individual policies.
Furthermore, the policies taken out for the benefit of employees appear to provide benefits payable periodically for the total or partial loss of income from an office or employment. Since it appears that the policies are taken out as part of a sickness or accident insurance plan or a disability insurance plan and since the employer has contributed to them, the total of the amounts received by an employee in a year not exceeding the amount provided for in paragraph 6(1)(f) should be included pursuant to that paragraph. Consequently, before granting any refund of tax paid on the inclusion of a benefit under paragraph 6(1)(a), it should be ascertained whether any amount was not required to be included under paragraph 6(1)(f).
For your information, unless exempted, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency's electronic library. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, the electronic library version can be provided. Alternatively, the client may request a severed copy using the Privacy Act criteria, which does not remove client identity. Requests for this latter version should be made by you to Ms. Jackie Page at (819) 994-2898. A copy will be sent to you for delivery to the client.
We hope that these comments are of assistance. Should you require further information on the content of this document, please do not hesitate to contact us.
Alain Godin
for the Director
International Operations and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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