6 October 1995 APFF Roundtable Q. 24, 9522400 - PERSONAL LIABILITY INSURANCE COVERING DIRECTORS

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.

APFF - 1995

Question 24

Personal liability insurance covering the directors of a corporation

Corporate directors are frequently covered by personal liability insurance (environment, salaries, taxes, etc.)

What is Revenue Canada’s position with regard to taxation of the following amounts for directors when they are paid out of insurance proceeds:

-legal expenses to defend directors;

-personal liability coverage.

Answer by the Department of Revenue

When a corporation takes out insurance for the benefit of a director against any liability incurred by him in his capacity as a director of the corporation or, at the corporation’s request, in his capacity as a director of another body corporate, as provided in section 124 of the Business Corporations Act or similar provisions of a provincial law (“provisions of the Act”), the premiums paid by the corporation for this insurance and the proceeds from it (including indemnification for legal expenses incurred to defend the director) are not normally regarded as providing a taxable benefit to a director, provided the insurance coverage is limited to what is provided for in the “provisions of the Act”.

When an insurance policy also covers risks and expenses other than those provided for in the “provisions of the Act”, that portion of the premium relating to other risks and expenses covered by the insurance policy constitutes a taxable benefit for the director who benefits from it. If there is no breakdown of the insurance premium between the various risks and expenses covered by the policy (i.e. those set out in the “provisions of the Act” and others), the entire premium paid is regarded as a taxable benefit.