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.
XXXXXXXXXX
Attention: XXXXXXXXXX
Dear Sirs:
RE: Ontario Sales Tax on Insurance Premiums
This is in reply to your letter of June 21, 1993 in which you requested confirmation of the correct tax treatment of amounts paid by the employer in respect of the province of Ontario's proposed retail sales tax levy on insurance premiums.
In your enquiry you have specifically noted that, in your view, the additional 8% Ontario sales tax should not be considered as part of the insurance premium since it is clearly not paid as consideration for a contract of insurance. You have concluded, as a result, that the payment by the employer of the 8% sales tax does not constitute a taxable benefit because it does not form part of the premium.
While we agree with your observation that a premium does not include a sales tax levy of the type proposed, we cannot agree with your conclusion. It is our view that the payment of the sales tax on an insurance policy premium by the employer where the employee is the beneficiary of the policy is, in itself, a benefit to that employee that is taxable under paragraph 6(1)(a) of the Income Tax Act (the Act). The Department takes the position however, that, to the extent that the payment of the underlying insurance premium by the employer is not required to be included in income as a benefit, the related sales tax will be given the same treatment.
Your enquiry specifically concerns the group term life insurance coverage in excess of $25,000 as referred to in subsection 6(4) of the Act. To the extent that the underlying premium for group term life insurance would not be treated as a taxable benefit in the hands of the employee, the additional 8% Ontario sales tax levy will be given the same treatment. Since the provincial sales tax relates directly to the insurance premium itself which, in turn, relates directly to the level of coverage, it is the Department's position that the portion of the levy that relates to the premium that is charged for coverage in excess of $25,000 should, if paid by the employer, be treated in the same way as the underlying premium for that excess coverage. Consequently, that portion of the provincial sales tax levy would be included in the income of the employee as a benefit under paragraph 6(1)(a) of the Act.
We hope that our comments will be of assistance to you.
Yours truly,
P.D. Fuoco for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch
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© Her Majesty the Queen in Right of Canada, 1993
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© Sa Majesté la Reine du Chef du Canada, 1993
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