25 August 1994 Internal T.I. 9416876 - DEF'N OF EMPLOYER'S CONTRIBUTION

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:

meaning of "an employer's contribution" to an insurance plan in 6(1)(a) (relating to the taxation of the payment of the related PST)

Position TAKEN:

question of fact based on where the obligation to make the contribution rests

Reasons FOR POSITION TAKEN:

previous correspondence and para 19 of it-428

August 25, 1994

	Source Deductions Division	Rulings Directorate
	André Bissonette	A. Humenuk
	Director	957-8953

Attention: Barb Larocque
DO/TC Support Services Section

			941687

Meaning of "employer's contribution"

We are replying to your memorandum of June 27, 1994 concerning the May 31, 1994 letter you received from
XXXXXXXXXX

XXXXXXXXXX has requested further clarification of our position with respect to the taxation of the benefit arising from the payment by an employer of an employee's share of contributions to an insurance plan and the payment of the related provincial sales tax.

In the comments that follow, unless otherwise stated, all statute references are to the Income Tax Act S.C. 1970-71-72, c.63 as amended, consolidated to June 10, 1993 (the "Act").

The significance of "an employer's contribution" is relevant for the purposes of paragraphs 6(1)(a) and (f) of the Act. Paragraph 6(1)(a) of the Act exempts from income the benefit derived from an employer's contribution to various types of insurance plans specified therein whereas paragraph 6(1)(f) requires an employee to include in income certain amounts payable out of a wage loss replacement plan to which the employer has made a contribution.

It is our view that the term "employer's contribution to the plan" implies a contractual obligation on the part of the employer to the insurer to pay all or part of the premiums required. If there is no such obligation, or legal requirement to the same effect, it is our view that the employer has not made a contribution to a plan as contemplated by paragraph 6(1)(f) of the Act, even if the employer has a separate agreement with the employee to reimburse the employee for costs incurred to obtain the insurance coverage provided. A reimbursement of this type would be included in income under subsection 5(1) or 6(1)(a) of the Act and the employer would add the reimbursement to the employee's T4 information slip annually.

The determination of whether a particular amount is an employer's contribution or an employee's contribution can only be made by looking at the actual wording of a particular plan to determine whether the plan, as a term of either the policy with the carrier, the employment contract or some other document, places the obligation to make the contribution upon either the employer or the employee. In the example cited by XXXXXXXXXX the employer pays the employee's share of required contributions during the period of maternity leave despite the absence of such a requirement in the collective agreement. Such a situation is similar to that described in paragraph 19 of Interpretation Bulletin IT-428 "Wage Loss Replacement Plans" wherein we affirm that the payment by the employer is reported as additional remuneration rather than as an employer's contribution to the plan. This is the desired result in the example in the bulletin as the plan's intent is to be an employee-pay-all plan.

We trust these comments will assist you in responding to XXXXXXXXXX.

B.W. Dath
Director
Business and General Division
Rulings Directorate
Policy and Legislation Branch