21 March 1994 External T.I. 9406985 - SPECIAL DEATH BENEFIT UNDER A GROUP INSURANCE POLICY

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.

DOCUMENT TYPE:

Opinion - 940698

ACCESS TO INFORMATION:

This Correspondence CAN be Released Under ATIP

Principal Issues:

Whether or not the payment of a special living death benefit to a particular individual covered under a group insurance policy would have consequences under the Income Tax Act to the other individuals also covered under this policy.

Whether or not the amount of the special living death benefits would cause us any concerns for purposes of the Income Tax Act.

Position TAKEN:

The payment itself should not result in any tax consequences pursuant to the Income Tax Act to the other individuals also covered under the group insurance policy.

Provided the total benefits paid out to an insured do not exceed the total death benefits otherwise payable to the insured the amendment to the policy to provide for a "living death benefit" would not result in a disposition of the policy.

Reasons FOR POSITION TAKEN:

Subsequent to the amendment to the policy to provide for the "living death benefit" the payments of such special benefits do not alter the rights of the other individuals under the group policy.

Such an amendment would not appear to be of such a fundamental nature as to result in a disposition of the policy. The "living death benefit" payments would, however, appear to constitute policy loans within the meaning of paragraph 148(9)(e) of the Income Tax Act.

LEGAL:

December 18, 1989 - 7148-3

FINANCE OPINION:

Not Applicable

JURISPRUDENCE:

N/A

RCT PUBLICATIONS:

N/A

HAA NUMBER:

5720-1

Public Service of Canada
Management Insurance Plan
Board of Trustees 940698
Ottawa, Ontario
K1A 0R5

Attention: Mr. David Swayze

March 21, 1994

Dear Sirs:

This is in reply to your letter of March 3, 1994 requesting our further views with respect to the introduction of a special "living death benefit" under the Public Service Management Insurance Plan ("PSMIP") as initially discussed in our January 31, 1994 letter in response to your December 10, 1993 request.

The special "living death benefit", as provided for in the draft policy endorsement ("living benefit agreement") setting out the terms of the "living death benefit", is to be paid to an individual covered under the PSMIP in situations where the individual's death is expected to occur within twelve months of receiving the special benefit payment because of an injury or illness and where there is no reasonable prospect of recovery; the employee is to provide all the medical information requested by the insurer administering the PSMIP; the employee and the beneficiary entitled to the death benefit payable under the PSMIP will both be required to sign the "living benefit agreement"; and the amount of the death benefit payable to the individual's beneficiary under the PSMIP will be reduced by the amount paid as a "living death benefit".

You requested our views where the formula to determine the "living death benefit" was to be varied from what is proposed in the "living benefit agreement". In this regard, our views stated in our January 31, 1994 letter would not be modified even though the amount of the "living death benefit" may be varied from what is proposed in the "living benefit agreement" provided the total amount paid out as a "living death benefit" does not exceed the total death benefit otherwise payable to the individual under the PSMIP.

You also requested during our March 17, 1994 telephone conversation our views as to whether or not the other individuals who are also covered under the PSMIP may be affected pursuant to the Income Tax Act because of the "living death benefit" payments to a particular individual also covered under the PSMIP. It is our view that making a payment to a particular individual covered under the PSMIP as a "living death benefit" would not in and of itself have any tax consequences to the remaining individuals also covered under the PSMIP.

The foregoing is an expression of opinion only and is not binding on the Department and may not necessarily apply in the context of a specific situation. We hope that this will be of assistance to you.

Yours truly,

F. Lee Workman
Acting Director
Financial Industries Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch
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