18 December 1992 Income Tax Severed Letter 9232337 - Group Term Life Insurance During Strike

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.

December 18,
1992

HEAD OFFICE
24(1) DISTRICT OFFICE Personal and
General
Source Deductions Section
Review/Control A. Humenuk
(613)957-2134
Attention: 19(1)
923233

Group Term Life Insurance Premiums

• We are replying to your facsimile transmission of October 29, 1992 concerning a labour dispute involving the 24(1) (the Employer).
• As we understand the situation which was presented to you, the

24(1)

whether the employees will be required to include in income a taxable benefit for life insurance coverage for the period of time during which the union is required to reimburse the employer for the premiums paid in respect of such coverage.

• Document Disclosed Pursuant to The Access To Information Act Document Divulgué en vertu de la loi sur l'accès à l'information
• In our conversation of December 3, 1992 (19(1)/Humenuk), you advised that there is no documentation supporting this arrangement in that the agreement between the Employer and the union is verbal. While we are reluctant to provide a response on a specific situation without having had the opportunity to examine all the relevant facts and documentation, we have attempted to provide you with general comments based on the assumptions we have outlined below.

In responding to this query, we had two major concerns.

• IV. Is the life insurance coverage for the duration of the strike received in respect of, in the course of, or by virtue of the employment of the striking workers?
• V. If the life insurance coverage for that period is received in respect of their employment, does the fact that the union pays the premium rather than the employer mean that the entire portion of premium applicable to a particular employee should be included in the employee's income without reference to the exemption for the portion of the premium related to the first $25,000 of coverage?
• In our view, life insurance coverage which is in place because of, or as a result of, an individual's employment can be considered to be a benefit received by virtue of, or in respect of, that individual's employment, notwithstanding that the premiums are paid by a third party or that the employees are absent from the workplace (i.e on leave or on strike). We considered whether the union's payment of the premium could be considered as a form of strike pay. Like strike pay, the union's payment of the premiums on a life insurance policy are paid as a result of a strike; however, unlike strike pay, the premiums paid in respect of a group term life insurance policy established by the employer can be linked to the employment of the individual where the employer remains the group policyholder of the life insurance contract.
• If, on the other hand, the union were to purchase its own group term life insurance policy for its members, the value of any benefit to the member would not be a taxable benefit (although the relevant portion of the union dues collected to fund such a benefit would not be deductible to the employees under paragraph 8(1)(i) of the Act).
• Document Disclosed Pursuant to The Access To Information Act Document Divulgué en vertu de la loi sur l'accès à l'information
• Consequently, where the employer remains the group policyholder, the value of the benefit will be included in the employee's income unless it falls within one of the exceptions listed in paragraph 6(1)(a) of the Act. Herein lies our second concern, namely whether the full value of the premium should be included in the employee's income because it is the union rather than the employer who is paying the premiums or “making the contribution”.
• In determining whether the premium can be considered the employer's contribution, it is not the manner in which the payments are remitted to the insurer which determines whether the premiums are that of the employer or the union. Such a determination can only be made by looking at the actual wording of the particular policy to determine whether the policy places upon the employer or the union the legal obligation to pay the premiums. If, as we have assumed, the employer is the group policyholder and is required to pay the premium to keep the policy in force, then it is our view that payment of the premium can be considered to be the employer's contribution notwithstanding that the union has agreed to reimburse the employer for the costs so incurred.
• Accordingly, it is our view that the portion of the premium in respect of coverage in excess of $25,000 would be included in the employee's income in the same manner as it would if the employer were paying the premium.

P.D. Fuoco
Section Chief
Personal and General Section
Business and General Division
Rulings Directorate
Legislative and Intergovernmental Affairs Branch

• Document Disclosed Pursuant to The Access To Information Act Document Divulgué en vertu de la loi sur l'accès à l'information