6 January 2010 External T.I. 2009-0322781E5 - Employer-provided Insurance Coverage

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.

Principal Issues: Taxability of employer-paid non-group life insurance or non-group accidental death and disability insurance where the employees are required to work in a high-risk zone.

Position: Question of fact, but in these types of circumstances the premiums are not likely taxable.

Reasons: Employer would appear to be the primary beneficiary.

XXXXXXXXXX 								2009-032278

January 6, 2010

Dear XXXXXXXXXX :

Re: Employer-paid Life Insurance or Accidental Death and Disability Insurance

This is in response to your letter that we received on May 12, 2009, regarding the taxability under the Income Tax Act (the Act") of certain premiums paid by XXXXXXXXXX (the "Employer") for life insurance or for accidental death and disability insurance for its employees (the "Employees").

The relevant facts described in your letter are briefly restated as follows:

The Employer, through a controlled foreign affiliate, as defined in subsection 95(1) of the Act, conducts business in XXXXXXXXXX ("high-risk zones").

From time to time, Employees are required to work in these high-risk zones for limited periods of time. Typically, the Employee's own life insurance policy or accidental death and disability insurance policy will not pay any benefits where that Employee's death or disability occurs while working in a high-risk zone.

The Employer's insurance providers have agreed to provide non-group life insurance or non-group accidental death and disability insurance to such Employees, subject to a certain pre-determined maximum limit, for the time period where a particular Employee is required to work in a high-risk zone. The Employer will pay the premiums for such insurance coverage subject to the pre-determined maximum limit.

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 70-6R5, "Advance Income Tax Rulings", dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant Canada Revenue Agency ("CRA") Tax Services Office. A list of TSOs is available on the "Contact Us" page of the CRA's website as well as copies of any publications mentioned herein. Notwithstanding the foregoing, we are prepared to offer the following comments.

Subject to certain listed exceptions, paragraph 6(1)(a) of the Act requires that the value of any benefits received or enjoyed by a taxpayer in the year in respect of, in the course of, or by virtue of an office or employment be included in the taxpayer's income from employment. The broad wording of this provision means that a taxable benefit may exist where there is any connection between the particular payment or benefit and the particular office or employment.

Where a particular life insurance policy does not qualify as a "group term life insurance policy" (see the definition of this term in subsection 248(1) of the Act) the amount of the employer-paid life insurance premiums would generally be required to be included in the particular employee's income as a taxable employment benefit pursuant to paragraph 6(1)(a) of the Act. Similarly, and as indicated in paragraph 20 of Interpretation Bulletin IT-428, Wage loss replacement plans, where an employer pays the premiums under a non-group insurance plan that is a sickness or accident insurance plan, a disability insurance plan, or an income maintenance insurance plan, the premium for such a plan is generally regarded as a taxable benefit to the employee under paragraph 6(1)(a) of the Act. However, since the jurisprudence for paragraph 6(1)(a) of the Act also makes it clear that where it can be established that the primary beneficiary is the employer and not the employee, the particular amount otherwise received or enjoyed by the employee would not result in a taxable employment benefit.

While ultimately a question of fact that must be determined on a case-by-case basis, it appears that is the Employer's business requirements to have certain of its Employees working in a high-risk zone which nullifies the Employees own life insurance. It also appears that the Employer is trying to ensure that these Employees are in the same economic position as they would have been in had they not been required to work in a high-risk zone.

Accordingly, where an employer would otherwise have significant difficulties getting its employees to agree to work in a particular high-risk zone and the quantum of insurance coverage provided by the employer is otherwise reasonable in the particular circumstances and does not result in an economic advantage to the employee, we would be inclined to agree that the particular employer would be the primary beneficiary in such circumstances.

We trust the above comments are of assistance.

Yours truly,

Renée Shields
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch