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Normandin Beaudry

Taxable benefits to surviving spouses and dependents of deceased employees

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There, in black and white

Bulletin NB Vol. 7 N. 16, October 2004

Taxable benefits arising from contributions paid by an employer for a group insurance plan have existed for several years. Today, plan sponsors generally understand the tax consequences of providing group insurance. However, insurance coverage for a surviving spouse or dependents that continues after the death of an employee or retiree are not always as integrated.

The purpose of this bulletin is to inform you about the tax status of these contributions and on certain aspects of the law that are not well known.

In this context, note that there were no recent changes in the laws or regulations governing taxable benefits and death benefits.

Taxable benefits

In Quebec, for provincial income tax purposes, an employer’s contribution to a group insurance plan are considered to be a taxable benefit to employees and retirees for the following types of coverage: basic life insurance, dependents’ life insurance, accidental death and dismemberment insurance, health insurance and dental insurance.

For federal income tax purposes, only basic and dependent’s life insurance coverage is considered a taxable benefit to active employees or retirees.

Following the death of an active employee or a retiree, the employer may extend certain types of coverage to the deceased’s surviving spouse or dependents. However, according to an interpretation letter from Revenue Québec and an interpretation bulletin from the federal Department of Finance, employers are not required to declare taxable benefits to a surviving spouse or dependents who receive insurance coverage following the death of an employee or retiree.

Why? Because there is a taxable benefit when the value of a benefit arises from an office or employment. The insurance benefit is granted by way of a surviving spouse or dependent, neither of whom has an employment relationship with the payer. Therefore, this exemption is given since the surviving spouse is not employed by the company paying the insurance contributions.

Moreover, the value of the insurance benefit to the surviving spouse or dependents cannot be taxable as a death benefit, since the deceased employee or retiree is not receiving any monies or benefit.

Implications for the employer

Although the employer’s contributions to the insurance coverage of a deceased’s surviving spouse or dependents do not have to be declared, they are still considered admissible expenses for the company.

Technical interpretation

Every employer’s situation is different. In certain circumstances, the fiscal authorities could consider that the employer is giving a benefit to a taxpayer. For example, the employer’s contributions to a group insurance plan could constitute a taxable benefit if these contributions replace a payment to the surviving spouse or dependents.

In such a case, we recommend that you obtain a tax expert for a technical interpretation.

 

Please feel free to contact us for additional information.

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