15 September 1993 External T.I. 9318485 F - Employment Benefits - Provincial Sales Tax

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 facsimile message dated June 23, 1993 in which you requested confirmation as to the Department's position with respect to the tax treatment of the 8% sales tax levy proposed in the recent Ontario provincial budget.

It is the Department's general position that the tax treatment of the employer's payment of the provincial sales tax will be the same as the tax treatment associated with the underlying premiums. Where the premiums relate to an insured benefit plan described in subparagraph 6(1)(a)(i) of the Income Tax Act (the Act); that is, a group sickness or accident insurance plan, a private health services plan, supplementary unemployment benefit plan or a group term life insurance policy, the payment of the sales tax related to the required employer premium contribution will not be treated as a taxable benefit since the payment of the underlying contribution by the employer is not considered a taxable benefit in the hands of the employee.

To the extent that the employer's payment of the contributions results in a taxable benefit being included in the income of the employee, the related sales tax will also be required to be included under paragraph 6(1)(a) of the Act.  For example, employer paid premiums with respect to group term life insurance coverage, by virtue of the provisions of subsection 6(4) of the Act, would not result in a taxable benefit to the employee where the coverage does not exceed $25,000. Where coverage does exceed $25,000, the portion of the premium along with the sales tax related to that excess would be required to be included in the employee's income.

We would also advise that where a benefit plan, such as a sickness or accident insurance plan, a disability insurance plan, or an income maintenance insurance plan, is structured as an employee-pay-all plan and the employer opts to pay the new sales tax on behalf of the employee, the payment of the tax would constitute a taxable benefit under paragraph 6(1)(a) of the Act, without affecting the employee-pay- all nature of the plan. On the other hand, where the funding of the plan benefits is shared, for example, half-and-half between the employer and the employee, the liability to pay the sales tax would be shared on the same basis. Under these circumstances, to the extent that the employer pays an amount that is properly payable by the employee, a taxable benefit under paragraph 6(1)(a) of the Act results, as explained above.

With regard to your reference to the Ontario Corporations (Premium) Tax, it is our understanding that the liability to pay the 2% premium tax rests with the insurer or, in the case of uninsured arrangements, the administrator of the plan/payer of the benefits. Consequently, the payment of the premium tax has no effect on the employees covered under such plans of arrangements.

We hope that our comments will be of some assistance to you.

Yours truly,

P.D. Fuoco for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch