19 September 1990 Income Tax Severed Letter ACC9719 - Payment by Employer of Liability Insurance Premiums

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.

Source Deductions Division                Rulings Directorate
Research and Enquiries Section            R.B. Day
                                          957-2136

Mr. J.C. Laporte Acting Chief

                                           901600

Payment by Employer of Liability Insurance Premiums to

              24(1)

We are writing in reply to your memorandum of July 18, 1990, wherein you requested our opinion as to whether or not the payment of a professional liability insurance premium by an employer for an employee would give rise to a taxable benefit in the hands of the employee.

                              24(1) 
Our Comments 

In our view, the determination of whether the payment of a liability insurance premium by an employer to cover negligent acts of an employee would be a taxable benefit to the employee depends upon who is the primary beneficiary of the payment.

In making this determination for membership fees paid by an employer, we have taken the position that the employer is the primary beneficiary if there is a job requirement, such as a specification contained in a classification standard or in a job description. Thus, in such cases, the payment of reasonable membership fees by an employer are not considered to be a taxable benefit to the employee.

Similarly, where an employer reimburses an employee for the cost of business liability insurance as a result of use by the employee of his/her vehicle for business purposes, the Department takes the view that the payment does not result in a taxable benefit to the employee.

Under civil law, except for cases involving the gross negligence of an employee in performing his/her duties, it is the employer who is basically liable for errors of an employee which are covered by a liability insurance policy. Thus the employer would generally be considered to be the primary beneficiary of such policies and the employee should not be considered to be in receipt of a taxable benefit.

Also, it appears reasonable to assume that being a paid-up member of the 24(1) liability insurance plan (or some other plan) would be a requirement of employment for most 24(1) If this is the case, following the logic applicable to membership fees, the payment of such premiums would not be viewed as a taxable benefit to an employee.

We trust that our comments will be of assistance to you.

B.W. Dath Director Business and General Division Rulings Directorate Legislative and Intergovernmental Affairs Branch