Group term life insurance benefit (taxable)
A group term life insurance benefit is an amount included in an employee’s income for a year when their life is insured under a group term life insurance policy. Section 6(4) of the Income Tax Act sets the inclusion as the amount prescribed for the year in respect of the insurance.
A buyer meets this when continuing a target’s staff benefits, so ask how the benefit is handled on the payroll. The CRA’s employer guide T4130 has a section on employer-paid premiums for group term life insurance policies. See what happens to the pension or benefits plan on a sale.
What the sources say
The Income Tax Act, section 6(4), adds to employment income the amount, if any, prescribed for the year in respect of the insurance. The CRA guide describes a group term life insurance policy as one under which the only amounts payable by the insurer are policy dividends, experience rating refunds, and amounts payable on the death or disability of an employee, former employee, retired employee or their covered dependants. The guide notes that premiums an employer pays for employees’ group life insurance that is not group term insurance are also a taxable benefit.
What to ask
- Whether the target’s group life cover is a group term policy in the CRA’s sense.
- How the target has been reporting the benefit on its employees’ slips.
- Whether the buyer’s insurer will continue the same cover after closing.
Sources
This definition is checked against primary sources. Links were last confirmed on the dates shown.
- 01Government of CanadaGovernmentIncome Tax Act, R.S.C. 1985, c. 1 (5th Supp.)
- 02Canada Revenue AgencyGovernmentEmployers’ Guide – Taxable Benefits and Allowances (T4130)
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