2001 Ruling 2001-0109363 - HEALTH & WELFARE TRUST

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues:

(1) Whether the transfer of employees, from a corporation to a partnership, would affect the status of the health and welfare trust that provides certain benefits to these employees.

(2) Whether the Partnership's assumption of the funding liability for these employees would affect the status of the health and welfare trust.

Position: (1) No. (2) No.

Reasons:

(1) There is no change in the benefits being provided to the employees pursuant to the health and welfare trust.

(2) The change in responsibility for funding the obligations under the health and welfare trust does not change the status of the health and welfare trust.

XXXXXXXXXX 2001-010936

XXXXXXXXXX, 2001

Dear XXXXXXXXXX:

Re: Advance Income Tax Ruling
XXXXXXXXXX

This is in reply to your letter, dated XXXXXXXXXX, in which you requested an advance income tax ruling on behalf of the above named taxpayer.

We understand that, to the best of your knowledge, none of the issues involved in the ruling request:

(i) is in an earlier return of the taxpayer or a related person,

(ii) is being considered by a tax services office or taxation center in connection with a previously filed tax return of the taxpayer or a related person,

(iii) is under objection by the taxpayer or a related person,

(iv) is before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired, and

(v) is the subject of a ruling previously issued by the Directorate.

Unless otherwise stated, all references to a statute are to the Income Tax Act R.S.C. 1985 (5th Supplement), c.1, as amended, (the "Act") and all terms and conditions used herein that are defined in the Act have the meaning given in such definition unless otherwise indicated.

Our understanding of the facts, proposed transactions and the purpose of the proposed transactions is as follows:

Definitions

(a) The "Company" is XXXXXXXXXX;

(b) "Newco" is a corporation to be incorporated pursuant to the Corporations Act of XXXXXXXXXX;

(c) The "Plan" is the existing Health and Welfare Plan of the Company;

(d) The "Trust" is the XXXXXXXXXX;

(e) "Taxable Canadian corporation" has the meaning assigned by subsection 89(1) of the Act;

(f) "Public corporation" has the meaning assigned by subsection 89(1) of the Act.

Facts

1. The Company is a taxable Canadian corporation and a public corporation. XXXXXXXXXX.

2. The Company has a comprehensive employee benefit program. The Plan is a part of this comprehensive employee benefit program.

3. The Trust holds, manages, invests and administers contributions to the Plan for the purpose of paying benefits from time to time under the Plan in accordance with the terms and conditions thereof. The Trustee of the Trust will not be amended.

4. The existing Plan is a "Health and Welfare Trust" within the meaning thereof in paragraphs 5 through 7 of Interpretation Bulletin IT-85R2. The Plan provides health and welfare benefits such as life insurance, medical and dental insurance and short-term disability insurance. The private health services portion of the Plan is a private health services plan, within the meaning thereof in subsection 248(1) of the Act, and includes the medical and dental benefits provided under the Plan. The short term disability benefits portion of the Plan qualifies as a group sickness or accident insurance plan as described in subparagraph 6(1)(a)(i) of the Act. The Plan is applicable to working employees, regular employees who retire or have retired from the Company, as well as their dependents, who satisfy the eligibility criteria set out in the Plan. Eligibility for benefits is outlined in the Company's benefit program documentation.

Proposed Transactions

5. The Company will incorporate Newco as a wholly-owned subsidiary of the Company.

6. The Company and Newco will enter into a partnership arrangement (the "Partnership") to facilitate certain business activities. Some of the existing employees (the "Employees") of the Company, which are currently entitled to benefits under the Plan, will become "employees" of the Partnership.

7. The existing Plan, and all related documentation, will be amended to ensure that the Employees who become employees of the Partnership will be able to continue to participate in the Plan while employed by the Partnership. The amendments to the Plan will include a provision that the Partnership will fund the Plan benefits of the Employees of the Partnership in accordance with the amended terms of the Plan and the Trust.

Purpose of the Proposed Transactions

The purpose of the proposed transactions is to ensure that the Employees of the Company that are currently entitled to benefits under the Plan will continue to be entitled to benefits thereunder after their employment is transferred to the Partnership and that the Partnership will be responsible for the funding of the contributions to the Plan in respect of these Employees.

Ruling

Provided that:

(a) the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions and the purpose of the proposed transactions;

(b) the proposed transactions are completed in the manner described above; and

(c) there are no other transactions which may be relevant to the rulings requested,

our ruling is as follows:

The transfer of the employment of the Employees from the Company to the Partnership and the amendments to the Plan and the Trust to have the Partnership fund the Plan benefits of the Employees of the Partnership, will not affect the status of the Plan as a health and welfare trust.

This ruling is given subject to the limitations and qualifications set out in Information Circular 70-6R4 issued by the Canada Customs and Revenue Agency ("CCRA") on January 29, 2001, and is binding on the CCRA provided that the proposed transactions are implemented on or before XXXXXXXXXX.

This ruling is based on the Act in its present form and does not take into account any proposed amendments to the Act which, if enacted, could have an effect on the ruling provided herein.

Except as expressly stated, this ruling does not imply acceptance, approval or confirmation of any income tax implications of the facts or proposed transactions.

Yours truly,

XXXXXXXXXX
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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