7 May 1991 Income Tax Severed Letter - Taxable Benefits Attributable to Employer's Payment of Group Life 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.

Dear Sirs:

Re: Taxable Benefits Attributable to Employer's Payment of Group Life Insurance Premiums

This is in reply to your letter of February 18, 1991 in which you requested us to reconsider our stated position regarding the consequences of the inclusion of dependant coverage under a group term life insurance policy. You attached to your letter a copy of an opinion issued by the Department on February 15, 1990 on the subject.

Your letter indicates that group insurance policies typically include provision for coverage in addition to term life insurance on the employee; for example, major medical, weekly indemnity, accidental death and dismemberment, etc. There are significant cost savings to be made on administering these coverages on all all-inclusive basis as opposed to creating separate policies for other than term life.

For the purposes of interpreting the provisions of the Income Tax Act in which it is used, the term "group term life insurance policy" is defined in subsection 248(1) of the Act. That definition specifically requires that the policy must be one under which ". . . no amount is payable to a person other than the group policyholder as a result of contributions made to or under the policy by the employer of the taxpayer before the death or disability of the taxpayer". It follows, therefore, that any group insurance policy which provides for an amount to be paid to a person other than the group policyholder (employer), such as upon the death or disability of a dependant, will not satisfy the legislated definition, for the purposes of the Act.

Consequently, the group insurance products referred to in your letter which provide for automatic dependant coverage and, therefore, create the possibility for an amount to be payable to other than the group policyholder prior to the death of the employee will not qualify as a group term life insurance policy.

The Department has taken the position, however, that where the dependant coverage is optional; that is, not included in the basic insurance coverage, the employees selection of the option effectively creates a separate policy in respect of that dependant coverage. As long as that portion of the premium is accounted for separately and, if paid by the employer, added to the employee's income as a taxable benefit, then the group term life insurance policy in respect of the employee will not be considered tainted by such additional coverage.

Any other interpretation of the relevant provisions would require a legislative amendment to the definition of a group term life insurance policy. You may wish to make representations to the Department of Finance in this regard.

We trust our comments will be of assistance to you.