21 July 1994 External T.I. 9406745 - DEPENDANT LIFE INSURANCE\survivor income benefits

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.

Principal Issues:

taxation of employee benefit arising from dependant group life insurance and survivor income benefit policies

Position TAKEN:

-dependant group term life insurance is excluded from def'n of group term life insurance policy and is fully taxable both before and after draft leg intro June 16, 1994

-the survivor income benefit policy is treated as a gtli policy with proceeds payable as an annuity

Reasons FOR POSITION TAKEN:

-the change in wording of def'n of gtli policy is clarification only

-see e72375a,ea1097,ea1027 for general pre-July 94 comments on such policies. Enquirer was only interested in post June 94 & pre-July 94 position had 12.2 complications (in some cases, interest accrues on a life insurance policy/annuity)

		Rulings Directorate
XXXXXXXXXX	A. Humenuk
		940674

Attention: XXXXXXXXXX

July 21, 1994

Dear Sirs:

Re: Dependant Group Life Insurance Policy
Survivor Income Benefit Plan Insurance Policy

This letter replaces the letter which was sent to you on July 8, 1994 concerning the taxability of employee benefits arising from employer-paid premiums paid in respect of the above noted insurance policies. Reference is also made to our telephone conversations of July 5 and 14, 1994 (XXXXXXXXXX/Humenuk) wherein you confirmed that your questions relate primarily to the period after June, 1994.

In the comments that follow, unless otherwise stated, all statute references are to the Income Tax Act S.C. 1970-71-72, c.63 as amended, consolidated to June 10, 1993 (the "Act").

A policy which provides group term life insurance in respect of an employee's dependant is not included in the definition of "group term life insurance policy" found in subsection 248(1) of the Act either as presently enacted or as proposed in the draft amendments announced in the Finance Canada News Release 94-057 dated June 16, 1994 (a copy of which was enclosed with our previous letter). Consequently, the value of the benefit in respect of group term life insurance coverage for dependants is taxable under paragraph 6(1)(a) of the Act rather than under subsection 6(4) of the Act. The value of this benefit would ordinarily be the amount of premium paid under the policy on behalf of the employee.

An insurance contract which provides survivor income benefits is considered to be a life insurance policy the proceeds of which are payable as an annuity. Where such a policy is a group term life insurance policy, the taxable benefit arising from the employer's payment of the premiums thereon is to be determined in accordance with proposed Part XXVII of the Income Tax Regulations for any period after July, 1994.

This response is provided on the basis that the draft legislation accompanying the Department of Finance's News Release #94-057 dated June 16, 1994 is passed into law in substantially the same form as proposed. If you have any comments concerning the draft legislation prior to its enactment, you should contact Finance Canada at the address or telephone number provided in the News Release.

We trust our comments will be of assistance to you.

Yours truly,

P.D. Fuoco
for Director
Business and General Division
Rulings Directorate
Policy and Legislation Branch