8 May 2012 Roundtable, 2012-0435761C6 - CALU CRA Roundtable - May 2012 - Question 9

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: Whether a ROP option on a disability policy disqualifies the plan as a GSAIP where the ROP premiums are paid by the employer, the employer is the beneficiary of the ROP, and the ROP premiums were not deducted by the employer?

Position: Yes

Reasons: The purpose of the exempting provision in subparagraph 6(1)(a)(i) of the ITA is to provide employees with a plan of insurance against loss in the face of sickness and accident, from which payments will be taxed as employment income under paragraph 6(1)(f) of the ITA The purpose is not to provide an exemption where the plan may provide benefits which are not taxable.

CALU CRA Roundtable - May 2012

Question 9 – Group Sickness and Accident Insurance Plans and ROP

Background

In TI 2009-0314871E5 issued March 3, 2011, CRA indicated that if there are other benefits provided under a disability policy, and if those benefits are not accident and sickness insurance benefits, the plan would not qualify as a group sickness and accident insurance plan (GSAIP). Specifically, the CRA indicated that if the plan includes a return of premium benefit to the disability policies, it will not qualify as a GSAIP and the entire amount of employer-paid premiums would be taxable to the participating employees.

Question

Assume an employer institutes a GSAIP for its employees and acquires individual disability policies to fund the benefits under the plan. The terms of the GSAIP do not include any provision for the payment of any amount to an employee if he or she does not become disabled in the relevant time period. The employer has the option to add a return of premium (ROP) benefit to the policies and chooses to add this feature and name itself as the beneficiary. The employer does not deduct any premium payable in respect of the ROP benefit.

Can the CRA confirm that in this situation the existence of the ROP benefits on the disability policies does not disqualify the plan as a GSAIP?

CRA Response

It is our view that a “group sickness or accident insurance plan” for the purposes of paragraph 6(1)(a) of the Income Tax Act does not include a plan or contract of insurance that provides or could provide benefits other than sickness and accident benefits. Therefore, the existence of additional benefits, such as the ROP on policies, would disqualify the plan as a GSAIP. It does not matter whether the employer or the employee is the recipient of the ROP benefit.

K. G. Weir / Nerill Thomas-Wilkinson
2012-043576