8 March 1996 External T.I. 9604615 - TAXABLE BENEFIT - ERROR AND OMISSIONS 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.

RULINGS DIRECTORATE
CORRESPONDENCE SUMMARY

Principal Issues:

Would payment by employer of supplementary errors and omissions insurance on behalf of salaried lawyers be a taxable benefit?

Position TAKEN:

Question of fact - Probably not

Reasons FOR POSITION TAKEN:

Departmental Position, Previous correspondence

In this case it appears to be the employer who is the primary beneficiary, and the insurance is a job requirement.

		960461
XXXXXXXXXX	D. Zion

Attention: XXXXXXXXXX

March 8, 1996

Dear Sirs:

Re: Error and Omissions Insurance

We are writing in reply to your correspondence of January 16, 1996 wherein you request a ruling as to whether or not the payment of additional errors and omissions insurance (the "insurance") by your firm on behalf of its salaried lawyers would give rise to a taxable benefit to these employees.

Advance income tax rulings, in addition to there being a charge for the service, are given only in respect of proposed transactions and cannot be provided where the main issue involves a question of fact. The specific issues which you have raised in your request appear to relate to a factual situation involving specific taxpayers. The tax implications inherent in such transactions can be determined only by reviewing all the relevant facts and documentation. Such a review is normally made by the local Revenue Canada Tax Services office and, accordingly, the following comments are more general in nature.

Our Comments

As we understand it, a lawyer must be a member in good standing of the Law Society of Ontario in order to be employed as such. In the case of salaried lawyers employed in private practice, a portion of their annual dues to the Law Society of Ontario includes a certain minimum mandatory level of errors and omissions insurance. In addition, as a condition of employment, your firm requires its salaried lawyers to carry supplementary errors and omissions insurance, for which the firm pays. You advised us in our telephone conversation of March 7, 1996 (Zion/XXXXXXXXXX) that pursuant to this mandatory insurance coverage, both the salaried lawyer and any staff working under that lawyer are insured against claims by third parties.

In our view, the determination of whether the payment of an errors and omissions insurance premium by an employer would be a taxable benefit to the employee depends upon who is considered the primary beneficiary of the payment. It is the Department's position that the employer is generally the primary beneficiary if there is a legal requirement that such liability insurance be obtained or it is a mandatory job requirement, such as a specification contained in a classification standard or in a job description. Thus, in such cases, the payment of reasonable insurance premiums by an employer are not considered to be a taxable benefit to the employee.

These comments represent our opinion of the law as it applies generally and are not binding on the Department. Nevertheless, we hope that our comments will be of assistance to you.

Yours truly,

J. Szeszycki
for Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch