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 Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues:
An employer wishes to establish two wage loss replacement plans. The employer will pay the premiums in respect of the first plan and the employees will pay the premiums for the second plan. The coverage of each of the two plans would be identical. Will two separate be considered to exist for the purposes of paragraph 6(1)(f) of the Act?
Position TAKEN:
Yes, provided that each is plan is structured such that it can be regarded as being separate from the other plan.
Reasons FOR POSITION TAKEN:
In the past, the Department has taken the position that it is possible for two separate plans to exist.
940048
XXXXXXXXXX M. Eisner
Attention: XXXXXXXXXX
May 20, 1994
Dear Sirs:
Re: Income Replacement Benefits
This is in reply to your letter of January 7, 1994 in which you requested our comments on the tax treatment of two co-existing disability insurance plans under paragraph 6(1)(f) of the Income Tax Act (the Act). In our response, unless otherwise stated, statute references are to the Income Tax Act 1970-71-72, c.63 as amended, consolidated to June 10, 1993. We regret the delay in providing you with the response.
You are concerned with the type of situation where an employer wishes to establish two wage loss replacement plans with respect to its employees. The first plan would ensure that each employee was provided with a basic level of disability insurance coverage. The premiums for this plan would be paid by the employer. Enhanced coverage would be provided by establishing a second plan. The entire cost of the additional coverage would be paid by the employees. The coverage paid for by the employees and the coverage paid for by the employer would essentially be identical.
In order to determine the tax consequences of the above situation, it is essential to determine whether there are, in fact, two wage loss replacement plans. In this regard, it is our general view that two wage loss replacement plans would be regarded as being in existence provided that there is no cross subsidization between the two plans, and the level of benefits, premiums rates, qualifications for membership and other terms and conditions of each of the plans are not dependent upon the existence of the other plan. In addition, the administration of the plans must indicate that each plan can be regarded as being separate from the other. It is also our view that the fact that the coverage of one plan is identical with the coverage of the other plan would not, in and by itself, result in the two plans being regarded as a single plan under which the employer has made contributions.
If it is established that two separate plans do exist, the benefits paid in respect of the first plan would be taxable pursuant to the provisions of paragraph 6(1)(f) of the Act while the benefits out of the second plan would be non-taxable.
These comments represent our opinion of the law as it applies generally and are not considered binding on the Department. We trust that our comments will be of assistance to you.
Yours truly,
J.A. Szeszycki
for Director
Business and General Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch
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