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 the CRA’s administrative position concerning employee discounts would apply when an employer waives the commission that would generally be charged for the placement of insurance.
Reasons: The CRA’s administrative position does not apply to discounts on services. The value of a benefit received or enjoyed by virtue of employment is included in income under paragraph 6(1)(a) of the Act.
March 26, 2019
Re: Employee insurance discounts
We are writing in response to your correspondence of October 26, 2017, concerning the administrative position of the Canada Revenue Agency (“CRA”) on employee discount programs. More specifically, you have asked whether the CRA’s administrative position may apply to exclude from income, the value of a benefit received by an employee who acquires an insurance policy through an employee incentive program.
In the situation you described, the total amount paid by the general public as consideration for the placement of insurance is usually comprised of a premium payable to an insurer for coverage under the policy, and a commission payable to an insurance broker as consideration for the placement of insurance.
Employees of an insurance broker (“Employer”) who acquire insurance coverage for personal purposes (e.g., home or automobile insurance) through an employee incentive program are not required to pay a commission or any other amount to the Employer in respect of the placement of insurance. In some instances, the Employer may not charge a commission to specific public groups (for example, a select group of the Employer’s clients).
This technical interpretation provides general comments about the provisions of the Income Tax Act (“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 70-6R8, 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, unless certain exceptions apply. The CRA’s administrative position concerning discounts on merchandise and commissions from personal purchases (outlined in Guide T4130, Employers’ Guide – Taxable Benefits and Allowances), provides that an employee is not usually considered to have received or enjoyed a benefit when the employee purchases merchandise from an employer at a discount, receives a commission on merchandise they buy for personal use, or receives a commission on the acquisition of a life insurance policy (subject to certain conditions).
In the situation you describe, an employee who participates in an incentive program offered by the Employer is able to acquire an insurance policy for a lower cost than that which is usually paid by the general public. That is, employees are not required to pay the commission which is generally charged by the Employer for the placement of insurance.
Employees who acquire insurance coverage in the manner described receive a discount on services (i.e., the placement of insurance) by virtue of their employment. As the CRA’s administrative position concerning discounts on merchandise and commissions from personal purchases does not apply to discounts on services, such benefits are required to be included in employment income under paragraph 6(1)(a) of the Act, notwithstanding that the benefit may be available to all employees of the Employer, or to certain clients of the Employer.
The value of the benefit included in employment income would generally be the difference between the amount customarily charged by the Employer for the placement of insurance (i.e., the fair market value of the service) and the amount, if any, paid by the employee in respect of that service.
We trust these comments will be helpful.
Jason R. Ward, CPA, CA
Business and Employment Income Section
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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