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.
Whether or not paragraph 6(1)(a) and subsection 15(1) would apply.
This is a question of fact.
Reasons FOR POSITION TAKEN:
This determination can only be made upon the review of the facts of a particular situation.
July 14, 1995
Re: Group Term Life Insurance Plan - XXXXXXXXXX
This is in reply to your letter of June 19, 1995. You have advised that the Association administers a group term life insurance plan for its physician members and that a number of these members operate their practices through corporations. You are enquiring about the related tax implications to the physician member and to the corporation if a particular corporation was to pay the insurance premiums under the Association's group term life insurance plan and also be the beneficiary of the life insurance benefits.
The situation you described in your letter relates to an actual situation and as noted in Information Circular IC-70-6R2, we do not express opinions on specific proposed transactions other than as a reply to an advance income tax ruling request. We enclose a copy of Information Circular IC-70-6R2 dated September 28, 1990 and the Special Release dated September 30, 1992 issued by Revenue Canada for your information. However, we offer the following general comments which may or may not apply to your particular fact situation.
Your first question was whether there would be a benefit to the physician member if the corporation pays the term life insurance premiums as a non tax-deductible expense. It cannot be determined from your letter whether or not the group term life insurance plan would be a "group term life insurance policy" as defined in subsection 248(1) of the Income Tax Act ("Act") nor that the corporation would be a policyholder for purposes of the Act. We do not know if the physician member is a shareholder or/and an employee of the corporation. It is a question of fact as to whether or not a benefit would be received by the physician member as an employee-related benefit pursuant to paragraph 6(1)(a) of the Act or as a shareholder-related benefit pursuant to subsection 15(1) of the Act. It appears to us that both of these provisions could apply subject to the specific facts of your situation. We have enclosed, for your information, Interpretation Bulletin IT-227R which deals with group term life insurance premiums and paragraph 6(1)(a) of the Act and Interpretation Bulletin IT-432R2 dealing with benefits conferred on shareholders and subsection 15(1) of the Act.
Your second question was whether or not the proceeds of the insurance in excess of the adjusted cost base of the insurance plan would be tax free, while the remainder would be taxable to the corporation or its shareholders. In general, where a corporation is a beneficiary and a policyholder of a life insurance policy the proceeds of the life insurance policy received by the corporation less the adjusted cost basis ("ACB") of the policy are added to its capital dividend account "(CDA"). The expressions "adjusted cost basis" and "capital dividend account" have the meanings assigned by subsections 148(9) and 89(1) of the Act, respectively. We have also enclosed Interpretation Bulletin IT-430R2 dealing with life insurance proceeds received by a private corporation for your information. Whether or not an amount would also be taxable to the policyholder of the policy pursuant to section 148 of the Act in respect of its interest in the policy is a question of fact which can only be determined upon review of the specific facts of a particular case. However, we note that a payment under a "life insurance policy", as defined in subsection 138(12) of the Act, in consequence of the death of any person whose life was insured under the policy would generally not be taxable pursuant to section 148 of the Act where the "life insurance policy" was either last acquired before December 2, 1982 or is an "exempt policy" as defined in section 306 of the Income Tax Regulations.
While we hope our comments are of assistance to you they do not constitute an advance income tax ruling and therefore are not binding on the Department in respect of a specific situation.
F. Lee Workman
Financial Institutions Section
Financial Industries Division
Income Tax Rulings and
Policy and Legislation Branch
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