14 January 1997 Ministerial Letter 9639618 - CALC OF TAX BENEFIT UNDER GROUP TERM LIFE 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.

Principal Issues:

explanation of why the taxable benefit from coverage under a group term life insurance policy will increase because of the deaths of other individuals covered under the policy

Position:

draft Regulation 2702 sets out the calculation of the benefit

Reasons:

the average cost of daily insurance under an experience rated policy will vary depending on whether the employer receives an experience rating refund or must pay an additional amount in respect of a premium deficiency. By creating a separate policy for retired employees from that covering active employees, the rate of claims under the policy is likely to increase, causing an increase in the taxable benefit

MINISTER/DEPUTY MINISTER'S OFFICE 96-08024M
ADM'S OFFICE
RETURN TO 15TH FLOOR, ALBION TOWER

January 14, 1997

XXXXXXXXXX

Dear XXXXXXXXXX:

I am writing in response to your letter of November 8, 1996, written on behalf of your constituent, XXXXXXXXXX, and his request for clarification of the term taxable benefit in the context of an employee's coverage under a group term life insurance policy. Of particular concern is the reason for calculating the taxable benefit based on the amount of life insurance claims paid for deaths occurring in the year.

The XXXXXXXXXX communiqué from XXXXXXXXXX former employer to its retired employees submitted with your letter, states that the 1995 taxable benefit from its group term life insurance policy increased partly because of the significant increase from previous years in the number of claims that were made under the policy. XXXXXXXXXX would like an explanation of why this is so.

The taxable benefit calculation arising from coverage under a group term life insurance policy is based on the premiums paid for the coverage. Under some types of policies, commonly called experience-rated policies, the amount of the premium paid for coverage will vary depending on the number of claims against the policy in the previous year. Since the method of calculating the taxable benefit from coverage under such a policy is based on the amount paid for coverage, the amount of the taxable benefit will vary as well.

While the cost of group term life insurance coverage under an experience rated policy can vary more significantly than the cost of non-experience rated policies, a significant increase in the number of claims under any group term life insurance policy will likely result in increased premiums.

I trust my comments will assist you in replying to your constituent.

Yours sincerely,

Jane Stewart, P.C., M.P.

A. Humenuk
957-2134
December 19, 1996