5 May 2017 External T.I. 2016-0668351E5 - Travel Accident Insurance Plans

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 benefit in respect of employer-paid premiums for a particular component of an insurance plan that provides lump-sum payments is included in an employee’s income?

Position: Question of fact.

Reasons: See response.

XXXXXXXXXX						2016-066835
T. Baltkois
May 5, 2017

Dear XXXXXXXXXX

Re: Travel accident insurance plans

We are writing in response to your correspondence of September 26, 2016, in which you asked whether a benefit in respect of employer contributions to a travel accident insurance plan that provides lump-sum payments would be included in an employee’s income under section 6 of the Income Tax Act (Act).

In the situation you describe, the employer provides travel accident insurance coverage to its employees through a travel accident insurance plan (Plan). The Plan is comprised of four components (basic travel, war risk, hazardous assignment, and transmission tower), each of which provides lump-sum payments. It is our understanding that the Plan is administered through a single insurance policy and that the employer makes contributions to the Plan.

We further understand that the basic travel component provides coverage to all employees who are required to travel in the course of performing employment duties. Additional insurance coverage is obtained by the employer (by specific endorsement) under the war risk, hazardous assignment, and transmission tower components of the Plan on an assignment by assignment basis, for employees whose work assignments are of a high-risk nature. The premiums for this additional insurance coverage are paid by the employer, and it appears that a single endorsement may be used to obtain insurance coverage for multiple employees.

Our comments

This technical interpretation provides general comments about the provisions of the Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R7, Advance Income Tax Rulings and Technical Interpretations.

Employment benefits, whether provided in cash or in-kind, are generally included in an employee’s income under section 6 of the Act. Benefits derived from an employer’s contribution to a sickness or accident insurance plan that provides lump-sum payments (or payments that are not compensation for the loss of employment income) are generally included in an employee’s income under paragraph 6(1)(a) or (e.1) of the Act.

If the plan is a group sickness or accident insurance plan that provides lump-sum payments, the benefit is included in the employee’s income under paragraph 6(1)(e.1) of the Act in the year the employer contributions are made.

However, if the plan is a non-group sickness or accident insurance plan that provides lump-sum payments, the benefit is generally included in the employee’s income under paragraph 6(1)(a) of the Act in the year the employer contributions are made, unless the employer is determined to be the primary beneficiary of the contributions.

¶2.24 of Income Tax Folio S2-F3-C2, Benefits and Allowances Received from Employment, discusses the concept of primary beneficiary, and states that although no single factor may be conclusive, a positive answer to one or more of the following questions may suggest that the employer is the primary beneficiary of a benefit:

• Does the employer have a business purpose for providing the benefit?
• Is the benefit required for the employee to perform the employment duties more effectively?
• Is the benefit required to fulfill a condition of employment?
• Does the employer have a moral or contractual obligation to provide the benefit to ensure that employees are not unduly subject to harm from performing the employment duties?

Where an employer requires its employees to perform work assignments of a high-risk nature and would otherwise have significant difficulty getting employees to agree to such assignments absent additional insurance coverage, it is our view that the employer would likely be considered the primary beneficiary. However, the quantum of insurance coverage must be reasonable in the circumstances.

It is a question of fact and of law whether the Plan is a group plan, or whether a particular component of the Plan may constitute a separate individual plan (i.e., a non-group plan). However, as it is our understanding that insurance coverage under the four components of the Plan (basic travel, war risk, hazardous assignment, and transmission tower) is provided through a single insurance policy, it appears likely that the Plan (in its entirety) would be a group plan. In such a case, a benefit in respect of the employer contributions to the Plan would be included in an employee’s income under paragraph 6(1)(e.1) of the Act, in the year the contributions were made. The lump-sum payments received by an employee from the Plan would not be included in income under paragraph 6(1)(f) of the Act and therefore, would not be taxable.

We trust these comments will be helpful.

Yours truly,

Nerill Thomas-Wilkinson, CPA, CA
Manager
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch