24 January 2012 External T.I. 2011-0397691E5 - Group Sickness or Accident Insurance Plan

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.

Principal Issues: Whether premiums paid for a plan that provided benefits in addition to accident or sickness was a "group sickness or accident insurance plan" for purposes of 6(1)(a)(i)?

Position: No

Reasons: A plan that provides benefits other than sickenss or accident is not a "group sickness or accident insurance plan" as contemplated by 6(1)(a)(i).

XXXXXXXXXX
									  2011-039769
									  K.G. Weir

January 24, 2012

Dear XXXXXXXXXX :

Re: Group Sickness or Accident Insurance Plan

We are writing in response to your letter of February 16, 2011, concerning the appropriate tax treatment of premiums paid by an employer for a particular disability insurance plan for a few of its employees. Under this plan, the employer entered into one contract of insurance with an insurance company with respect to these few employees. The insurance contract is owned by the employer and the premiums are paid by the employer from its own funds with the exception of the amount paid by some of the employees for a return of premiums (ROP) benefit.

Subsection 6(1) of the Income Tax Act (ITA) stipulates that the value of benefits of any kind received by an employee in respect of, in the course of, or by virtue of an office or employment are included in income and subject to tax unless otherwise excluded by another provision of the ITA. Subparagraph 6(1)(a)(i) of the ITA excludes benefits derived from an employer's contributions to certain employer-sponsored arrangements including, among others, a "group sickness or accident insurance plan" (GSAIP).

The exception under subparagraph 6(1)(a)(i) of the ITA only applies to group plans. For a particular plan to be considered a group plan it must provide benefits to more than one employee.

It is our view that a GSAIP does not include any plan or contract of insurance that provides benefits other than sickness and/or accident benefits. Therefore, where a plan or contract of insurance could provide other benefits to employees, such as ROP where there has been no adverse event, the plan or contract of insurance will not qualify as a GSAIP.

Where an employer pays the premiums on behalf of the employees for a plan or contract of insurance that is not a GSAIP, the premiums should be included in the employee's income as a taxable benefit.

Based on the information provided in this case, the disability insurance plan established by the employer for the few employees is not a GSAIP as the plan could provide benefits other than sickness or accident benefits, that is the plan could provide ROP benefits to some employees. As such, the premiums paid by the employer are a taxable benefit to the employees.

We trust these comments will be of assistance.

Yours truly,

Nerill Thomas-Wilkinson
Manager
for Director
Reorganizations Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

cc: Mr. XXXXXXXXXX CGA