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: Is the optinal dependant life insurance coverage still required under a group term life insurance?
Position:YES
Reasons: Part XXVII of the Regulations appplies to determine the benefit under 6(4). The optinal dependant policy benefit is taxed under 6(1)(a).
XXXXXXXXXX 980318
C. Tremblay
Attention: XXXXXXXXXX
March 31, 1998
Dear Sirs:
Re: Optional Dependant life Insurance Coverage
This is in reply to your letter of February 4, 1998, concerning the above-noted subject. Since subsection 6(4) of the Income Tax Act (the “Act”) no longer provides for a $25,000 group term life insurance exemption, you seek our confirmation that optional dependant coverage is no longer necessary under a group term life insurance policy for employees.
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” as defined in subsection 248(1) of the Act. The value of the benefit in respect of group term life insurance for dependants is taxable under paragraph 6(1)(a) of the Act rather than subsection 6(4) of the Act. The value of this benefit would ordinarily be the amount of the premium paid under the policy in respect of coverage for the employee and his or her dependants. Proposed Part XXVII of the Income Tax Regulations (the “Regulations”) prescribes for the purpose of subsection 6(4) of the Act, the amount of the taxpayer’s benefit for a taxation year in respect of insurance under a group term life insurance policy. In general terms, the term insurance benefit is equal to the amount of term insurance in force in the year times the average cost of insurance under the policy for the year.
The Department accepts that where dependant coverage is optional rather than automatic or mandatory, the employee’s selection of such optional coverage effectively creates a separate policy and that, provided the premium for the optional coverage is accounted for separately and added to the employee’s income as a taxable benefit (if paid for by the employer), then the policy covering the employee’s life will still be treated as a group term life insurance policy. Accordingly, optional dependant coverage is still necessary.
We trust our comments will be of assistance to you
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Division
Policy and Legislation Branch
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