3 August 1994 External T.I. 9411005 - DISABILITY COVERAGE FOR INDEPENDANT CONTRACTORS

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:

taxation of payments out of a multi-employer disability plan where coverage is provided to "self-employed" individuals who pay their own premiums by reason of the collective agreement

Position TAKEN:

a H&W trust, as understood by the Dept, cannot provide coverage for non-employees, such as partners or independant contractors, regardless of whether such individuals pay for coverage themselves

Reasons FOR POSITION TAKEN:

employer plans & more particularly the H&W trusts which administer such plans are restricted to providing benefits for employees: see para 7 of it-85r2

A. Humenuk
XXXXXXXXXX 941100

Attention: XXXXXXXXXX

August 3, 1994

Dear Sirs:

Re: Long Term Disability Insurance

We are replying to your letter of April 21, 1994 concerning the inclusion of non-employees in the multi-employer plan administered by you. We apologize for the delay in responding.

You state that the multi-employer health and welfare trust which you administer provides various types of insurance coverage which are fully funded by the employers participating in the plan. Of the insurance benefits provided under the plan, only the provincial medical insurance, group term life insurance and accidental death and dismemberment insurance are funded by way of premiums payable to the province or an insurance company. In those situations where an employer has hired "dependant contractors" to provide services, arrangements have been made whereby the dependant contractor is permitted to contribute to the trust in order to be covered by the various plans administered by the trust.

Your concern arises in respect of these dependant contractors and the plan benefits which give rise to an income inclusion in the hands of employees, such as the premiums paid for provincial health care, disability benefits received out of the income maintenance plan and the taxable portion of premiums paid on group term life insurance policies.

You ask who is responsible for determining the taxability of benefits for such individuals and for guidance in determining the appropriate manner of reporting such benefits. From your perspective, the issue of whether an information slip is required for "dependant contractors" is further complicated by the fact that the status of such individuals as self-employed individuals, employees or as employees of personal services corporations is unclear to you and may change during the year.

The tax consequences relating to an on-going situation are best determined by the local district taxation office after a thorough review of all relevant facts and documentation pertaining to the situation. Nevertheless, we offer the following general comments which may be of assistance to you. If you require further clarification please submit all the relevant facts and documentation, including the details of the private arrangements with the "dependant contractors", collective agreements with employees and with other parties and the health and welfare plan documentation to the your local district taxation office for their review.

We are not certain what you mean by the term "dependant contractors". For the purposes of the Act, an employee is an individual who provides services under a contract of service and an independent contractor is an individual, partnership or corporation which provides services under a contract for services. Generally, services provided as a self-employed independent contractor are not insurable under the Unemployment Insurance Act nor is the payer responsible for Canada Pension Plan contributions on the amount so paid. The attached pamphlet "Your Appeal Rights: Unemployment Insurance and Canada Pension Plan Coverage" explains the procedures to be followed to obtain a determination of status of service with a particular payer.

In any event, it is our view that coverage under the plans administered by a health and welfare trust as described in Interpretation Bulletin IT-85R2 "Health and Welfare Trusts" is limited to employees. A health and welfare trust will not qualify for the treatment described in the bulletin if the trust is providing insurance coverage or other benefits to individuals who are not employees of the employers contributing to the trust. This includes the situation where the non-employees are required to make contributions to the plan in exchange for the benefits received. As indicated in paragraph 7 of the bulletin, where an employer seeks to also provide benefits for individuals who are not employees of the employer, a separate trust must be set up to provide such benefits. The taxation of trusts which do not qualify as health and welfare trusts is outlined in the attached T3 Guide for the Filing of Trust Returns.

We would also like to draw your attention to the draft amendments to the Act and Regulations released by the Department of Finance on June 16, 1994 which implement the February 1994 budget proposal to eliminate the exemption for the first $25,000 of group term life insurance coverage.

We trust our comments will be of assistance to you.

Yours truly,

P.D. Fuoco
for Director
Business and General Division
Rulings Directorate
Policy and Legislation Branch