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Principal Issues: [TaxInterpretations translation] What is the amount of benefits from a group salary insurance plan that a taxpayer must include in computing the taxpayer’s income?
Position: Question of fact. In this case, $4,000.
Reasons: Application of paragraph 6(1)(f).
XXXXXXXXXX 2010-038641
July 19, 2011
Dear Madam,
Subject: Group salary insurance plan
This is in response to your e-mail of November 9, 2010, in which you requested our comments on a group salary insurance plan.
Unless otherwise indicated, all statutory references herein are to the provisions of the Income Tax Act (the “Act").
In particular, you described the situation of a taxpayer ("Ms. X") who worked for ABC Inc. from 2000 to 2005. During those years, she and her employer each annually contributed $1,500 to a group salary insurance plan (a "Plan"). From 2006 to 2010, Ms. X was employed by WXY Inc. (which had no connection with ABC Inc.) and her employer and she each annually contributed $1,200 to a Plan each year. In 2010, Ms. X was ill and received $10,000 from the Plan. She had never received benefits before that time.
For 2010, you wish to know the amount that will have to be included in computing Ms. X’s income from an office or employment.
Our Comments
It appears to us that the situation described in your letter and hereinafter summarized could constitute an actual situation involving taxpayers. As explained in Information Circular 70-6R5, it is not the practice of this Directorate to provide comments on proposed transactions involving specific taxpayers otherwise than in the form of an advance income tax ruling. If your situation involved specific taxpayers and one or more transactions, you should submit all relevant facts and documents to the appropriate Tax Services Office for their opinion. However, we are able to offer the following general comments that may be helpful to you.
Paragraph 6(1)(f) provides that all amounts that an employee or former employee receives on a periodic basis as compensation payable for loss of income from an office or employment pursuant to, inter alia, a Plan to which the employee’s employer has made a contribution, must be included in the employee’s income, subject to the reduction provided for in that paragraph for contributions made to the Plan by the employee after 1967.
In the view of the Canada Revenue Agency ("CRA"), a Plan (by whatever appellation) referred to in paragraph 6(1)(f) means any agreement between an employer and its employees, or an employee group or association, that provides compensation to an employee for the loss of employment income due to illness, pregnancy or accident, through benefits payable on a periodic basis. That agreement can be formal, such as a contract negotiated between an employer and its employees, or informal, as a promise by an employer to pay the employer’s employees salary insurance benefits. Where the agreement provides for an insurance contract with an insurance company, the insurance contract is part of the plan, but does not properly speaking constitute the plan itself.
For the purposes of paragraph 6(1)(f), a plan referred to therein must be an "insurance" plan. Consequently, those provisions do not apply to uninsured employee benefits, such as salary continuance or salary payments based on a sick leave balance, which are included in income by virtue of paragraph 6(1)(a).
For the purposes of that section, we have assumed that the Plan is an income maintenance insurance plan under paragraph 6(1)(f).
Paragraph 6(1)(f) reads as follows:
6(1) There shall be included in computing the income of a taxpayer for a taxation year as income from an office or employment such of the following amounts as are applicable …
(f) the total of all amounts received by the taxpayer in the year that were payable to the taxpayer on a periodic basis in respect of the loss of all or any part of the taxpayer’s income from an office or employment, pursuant to
(i) a sickness or accident insurance plan,
(ii) a disability insurance plan,
(iii) an income maintenance insurance plan, or
(iii.1) a plan described in any of subparagraphs (i) to (iii) that is administered or provided by an employee life and health trust,
to or under which the taxpayer’s employer has made a contribution, not exceeding the amount, if any, by which
(iv) the total of all such amounts received by the taxpayer pursuant to the plan before the end of the year and
(A) where there was a preceding taxation year ending after 1971 in which any such amount was, by virtue of this paragraph, included in computing the taxpayer’s income, after the last such year, and
(B) in any other case, after 1971,
exceeds
(v) the total of the contributions made by the taxpayer under the plan before the end of the year and
(A) where there was a preceding taxation year described in clause (iv)(A), after the last such year, and
(B) in any other case, after 1967;
For the purpose of subclause 6(1)(f)(v), only the contributions made by the employee to the particular plan from which the benefits were received by the employee are deductible. As a result, if an employee changes employment and becomes a beneficiary under the new employer's plans, the employee cannot deduct the contributions the employee made in the previous employment from the benefits received from the new employer's plan.
In the situation you described, we believe that the sum of $4,000 will be required to be included in computing Ms. X's income for the year 2010. In particular, although the total received in 2010 is $10,000, that total cannot exceed the amount, if any, by which the total of the sums received from the Plan enjoyed by Ms. X by virtue of her employment with WXY Inc. exceeds the total of the contributions made by Mrs. X to such Plan.
Best regards,
François Bordeleau
Manager
Business and Partnerships Section
Income Tax Rulings Directorate
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