As you may have heard, the Federal Budget tabled on March 29, 2012 proposed that employer-paid premiums for Group Accidental Death and Dismemberment (AD&D) insurance and for Group Critical Illness (CI) insurance are to be included in an employee’s income and thus become a taxable benefit. The Budget proposed that these changes are to apply to premiums paid on or after March 29, 2012 if the premium relates to coverage after 2012. The changes are to apply to employees across Canada.
Over the intervening months, this proposal has been subject to some debate, with notable opposition from the Canadian Life and Health Insurance Association on behalf of the Canadian insurance industry. However, on the evening of December 5, the proposal passed final reading in the House of Commons as part of Bill C-45, the government’s second budget implementation legislation, for a January 1, 2013 implementation.
So we encourage employers, who have not already done so, to now make appropriate modifications to reflect these changes, and to communicate with their employees about this new taxable benefit.
Although the Department of Finance and the Canada Revenue Agency (CRA) have yet to offer concrete direction on specific technical issues, we offer the following guidance to answer some common questions:
· These changes apply to Group AD&D insurance and Group CI insurance. This implicitly includes Group Business.
· The changes apply to employer groups and their employees. Employers should look to the Income Tax Act to determine how employees are defined in their specific circumstances when coverage extends to individuals who are not employees, such as volunteers, campers, students, guests and directors.
· Although these changes take effect March 29, 2012, employer-paid premium will not be taxable to employees until 2013 and only if the premium relates to 2013 coverage. Thus premium paid in 2012 that relates to coverage in 2013 will be included in an employee’s 2013 income. For example, AD&D premium paid in December 2012 for January 2013 coverage will be deemed a taxable benefit, so employers must include this premium in their employees’ taxable benefit calculation for 2013.
· Where an insurance policy has annual premium paid in 2012 that covers a benefit period that runs into 2013, a pro-rata basis should be used to allocate a portion of this premium to the period after 2012. Only this portion is taxable.
· Where there is ambiguity about how to allocate premium amongst employees (for instance, a policy with a minimum annual premium, or a Business Travel Accident policy with
a premium covering all employees regardless of their actual travel dates), then employers must make a reasonable and logical allocation in a manner that they can defend to the CRA if required.
For more information on the new federal legislation, please consult http://www.cra-arc.gc.ca/gncy/bdgt/2012/qa06-eng.html.
Or Contact  Chris Nielsen
Employee Benefits, Retirement Savings, & Wellness | Capri Insurance |
Main: 250.860.2426 Ext. 3822 | Direct: 250.869.3822 | Cell: 250.870.4171 * [email protected]