30 June 1986 Income Tax Severed Letter 5-1518 - [Taxation of Group Life Insurance Premium]

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.

XXXX

P.K. Tang (613) 957-2103

Attention: XXXX

JUN 30 1986

Dear Sirs:

This is in reply to your letter of April 29, 1986, wherein you request "an advance income tax ruling" with respect to the taxation of Group Life Insurance Premium under subsection 6(4) the Income Tax Act (the "Act") concerning a hypothetical XXXX in Ontario. We regret that we are unable to issue a ruling as requested. As outlined in Information Circular No. 70-6R, an advance ruling will be issued by the Department only in respect of proposed transactions which are seriously contemplated and are not of a hypothetical nature. We are, however, prepared to provide the following opinion for your reference.

You inform us that the XXXX is the policy holder for all group insurance policies covering XXXX employees in Ontario. The administrative staff at the XXXX are covered by a life insurance package including: XXXX

Using the example of a XXXX earning an annual salary of $40,000 your method of calculating the amount of taxable benefit to him under subsection 6(4) of the Act is as follows:

Amount of life insurance would be:

basic Life, (2/3 salary rounded
up to next $1,000)                   $ 27,000

AD & D (2/3 salary rounded up
to next $1,000)                           27,000

Supplementary Life
(3 X salary)                                120,000

                                                 $174,000

Life insurance premiums would be:

                                    Total             Employer's Share
                                  Premiums           of Premiums 

Basic Life                 $ 87.48 (xl)              $ 87.48 
AD & D                12.64 (xl)                12.64 
Supplementary Life   432.00 (x1/2)         216.00

                                $532.12                  $316.12

Amount of life insurance                       $174,000 
Amount of life insurance
deductible from income tax                     -25,000

Amount of life insurance taxable           $149,000 

Taxable Benefit to employee:

Employer share of premium   X   Amount of life insurance taxable
                  Divided by Total amount of life insurance

$316.12 X $149,000 divided by $174,000 = $270.70

Therefore, the taxable benefit for this hypothetical employee would be $270.70

We agree with the method used in calculating the benefit to the employee under subsection 6(4) of the Act. However, we must point out that the Department accepts as a life insurance policy any policy of insurance where one of the risks covered is the death of the person insured but not an insurance policy which covers death only by reason of accident. Therefore, in the hypothetical situation described if the accidental death and dismemberment insurance were under a separate policy this policy would not be considered a life insurance policy for purposes of subsection 6(4) of the Act and the subsection would not be applicable to it.

We enclose herewith for your reference copy of IT-227R dealing with "Group Term Life Insurance Premiums".

We trust the above will be of assistance to you.

Yours truly,

for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch

Enclosure