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.
XXX
We are writing in reply to your letter of April 23, 1991, wherein you requested confirmation of the income tax implications of setting up an employee pay-all plan for Group Long Term Disability (LTD) Insurance Coverage as described below.
An employer purchases a Group Coverage LTD policy from a group insurance carrier, as an employee benefit for the employees.
The intent is to establish an employee pay-all plan so that, in the event of a disability, the employee will receive non-taxable insurance payments. Such periodic benefit payments would be made by the insurance carrier directly to the disabled employee.
In order to achieve this end, the employer will:
- (a) pay the insurance premiums to the insurance carrier on behalf of the employees.
- (b) add the monthly premium amount to each employee's monthly pay as a taxable benefit and the annual aggregate premium to the employee's form T4. Withholdings at source, throughout the year, will be made on a base salary which includes the insurance premium.
With respect to the above, you have requested that we confirm your view that the premiums paid by the employer would be deductible in computing income and that payment of the premiums in the manner described would evidence the existence of an employee pay-all plan.
Our Comments
Whether or not a particular LTD plan is an employee pay-all plan would involve a finding of fact that can only be determined after reviewing the terms of the plan and any related documents. In the absence of such facts and documentation our comments will be of a general nature.
The prime factor in determining whether or not such a plan is an employee pay-all plan is the existence of a requirement, either in the policy of insurance or an employee's contract of employment, that places upon the employee the legal obligation to pay one-hundred percent of the required premiums. The manner in which payments are deducted, remitted to the carrier and accounted for by the employer does not, in and by itself, determine whether or not the plan is an "employee pay-all" plan. For further discussion of the factors to be considered in making such a determination, please refer to the comments in paragraph 17 of IT-428.
In the scenario set out in your letter, it is our opinion that the premiums paid to the carrier would be deductible in computing the employer's income.
Should you have a factual situation involving an actual taxpayer that you wish to have considered, you should forward all relevant facts and documentation to the appropriate district taxation office for their consideration.
We trust that our comments are of assistance to you.
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© Her Majesty the Queen in Right of Canada, 1991
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© Sa Majesté la Reine du Chef du Canada, 1991
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