7 October 1997 Internal T.I. 9724457 - EMPLOYMENT BENEFIT

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:

Whether personal liability insurance taken out by a corporation for its directors constitutes a taxable benefit

Position:

Not in situations where the insurance coverage is limited to what is provided for in section 124 of the Business Corporation Act and similar provisions of provincial law

Reasons:

Consistent with response given in question 24 at the 1995 APPF

							October 8, 1997

	TORONTO TAX SERVICES OFFICE		HEADQUARTERS
	Client Assistance				Financial Industries
							  Division
							972445

Directors and Officers Insurance

This is in reply to your memorandum dated September 3, 1997, wherein you requested our comments in respect of the letter received from XXXXXXXXXX in connection with indemnification of directors and officers of non-profit organizations. In particular, the enquiry related to the taxability of insurance proceeds in respect of an indemnification policy purchased by a corporation for their directors and officers.

Generally speaking, where the risks covered by the policy are inherent and normal occurrences in the carrying out of the duties of the insured as a director or officer of the corporation, neither the premiums paid in respect of such insurance nor any proceeds which may become receivable under such policy will be considered a taxable benefit to the director or officer.

We have taken the position at the 1995 APFF that when a corporation takes out insurance for the benefit of a director against any liability incurred by him in his capacity as a director of the corporation as provided in section 124 of the Business Corporations Act or similar provisions of a provincial law ("provisions of the Act"), the premiums paid by the corporation for this insurance and the proceeds from it (including indemnification for legal expenses incurred to defend the director) are not normally regarded as providing a taxable benefit to a director, provided that the insurance coverage is limited to what is provided for in the "provisions of the Act".

When an insurance policy also covers risks and expenses other than those provided for in the "provisions of the Act", that portion of the premium relating to other risks and expenses covered by the insurance policy constitutes a taxable benefit for the director who benefits from it. If there is no breakdown of the insurance premium between the various risks and expenses covered by the policy, the entire premium paid is regarded as a taxable benefit.

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch