30 June 1993 Income Tax Severed Letter 9318685 - Employment Benefit—Ontario PST (Insurance)

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

                                                   931868
XXXXXXXXXX                                         J.A. Szeszycki
                                                   (613) 957-2135

Attention: XXXXXXXXXX

June 30, 1993

Dear XXXXXXXXXX

Re: Ontario Sales Tax on Insurance Premiums

This is in reply to your facsimile transmission of June 28, 1993 in which you requested confirmation of the correct income tax treatment of amounts paid by the employer in respect of the province of Ontario's proposed retail sales tax levy on insurance premiums.

You have specifically asked us to confirm that:

a) with respect to employer-paid life insurance coverage, sales taxes on premiums paid for coverage in excess of $25,000 do not have to be included in the calculation of the employee's taxable benefit, and

b) with respect to employer-paid uninsured group health, dental, and long term disability plans and insured accident coverage, sales taxes on premiums paid or benefit payments will not become a taxable benefit to the employee.

The retail sales tax levy to which you refer is the one proposed in the Ontario Budget as presented to the Ontario legislature on May 19, 1993. The proposal extends the 8% sales tax to apply to, among other things, certain insurance premiums. The noted exceptions are automobile insurance premiums which are to be taxed at 5% and those relating to individual policies for life, health, and physical well- being which are to be exempt from tax. It further indicates that uninsured benefit arrangements will also be subject to tax.

It is our general view that the income tax treatment of an employer's payment of the sales tax on the employer's share of premiums will be the same as the treatment given to the value of the benefit to which it applies. For example, if the benefit arising on the employer's contribution constitutes a taxable benefit to the employee, then the payment of the related sales tax would also be considered as a taxable benefit. Conversely, where the benefit is a non- taxable benefit to the employee, the employer contribution including the related sales tax would be considered as a non-taxable benefit.

Specifically, with respect to employer-paid group term life insurance premiums, the sales taxes that relate to the premiums on the first $25,000 of coverage (as described in subsection 6(4) of the Income Tax Act (the "Act")) would not be included in the employee's income as a taxable benefit. The tax relating to the coverage in excess of $25,000 would be included in the employee's income in the same way as the premium to which it relates.

The sales tax related to the payment of benefits under self- insured benefit arangements such as those described in (b) of your letter and the employer-paid premiums on insured accident coverage, which payment would not be required to be included in the employee's income by virtue of the excluding provision of paragraph 6(1)(a) of the Act, would correspondingly not constitute a taxable benefit to the employee.

We hope our comments will be of assistance to you.

Yours truly,

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