2 July 1996 External T.I. 9613345 - TAX ON VARIOUS EMPLOYEE BENEFITS INC PHSP FOR WIDOW

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 employee benefits from 1:phsp coverage for employees' survivors, 2:counselling, 3:preferred rate mortgages & 4:waiver of bank fees

Position:

1: not taxable 2: usually exempt 3: taxable benefit calculated under 80.4 4: taxable

Reasons:

1: as phsp coverage for pensioners or the surviving spouse & dependants of a deceased employee is an extension of the non-taxable benefit received by the employee while actively employed, we have taken the position that the non-taxable status of the phsp coverage applies to the pensioners & surviving dependants in the same manner as it applied for active employees
2: 6(1)(a)(iv)
3: 6(9)
4: 6(1)(a) -benefit valued as difference between fees charged to the public and amount, if any, charged to employee

A. Humenuk
XXXXXXXXXX		961334

Attention: XXXXXXXXXX

July 2, 1996

Dear Sirs:

Re: Employee Benefits

We are replying to your letter of April 10, 1996, in which you ask us to confirm the tax consequences relating to certain benefits provided to employees by their employers either directly or through a flexible benefit plan.

The income tax implications resulting from proposed transactions are confirmed by this Department only by way of an advance income tax ruling as described in Information Circular 70-6R2 "Advance Income Tax Rulings" dated September 28, 1990, and Special Release thereto dated September 30, 1992. If you wish confirmation of the tax consequences of a plan already in existence, you should submit all the relevant plan documentation to the appropriate tax services office. Nevertheless we offer the following general comments which may be of assistance to you.

In the hypothetical situations you describe, an employer provides one or more of the following benefits to its employees either as a benefit available to all employees meeting certain criteria, or as part of a flexible benefit plan:

- private health services plan coverage for an employee's spouse and dependants after the death of an employee or former employee who has retired,

-counselling services provided through an employee assistance plan,

-preferred mortgage rates and

-a waiver of fees customarily charged for banking services.

Each benefit provided under a flexible benefit plan is normally taxed in the same manner as it would be, if offered separately from the plan. When the terms and conditions of a particular flexible benefit plan cause it to be an employee benefit plan or other arrangement for which specific rules in the Act apply, benefits will be taxed in accordance with the statutory provisions covering that type of arrangement.

When a private health services plan continues to provide coverage for a surviving spouse or dependant of a deceased employee or former employee that relates to coverage previously provided in respect of that individual while the employee or former employee was still alive, it is our opinion that the benefit arising from premiums paid on behalf of the survivors is not required to be included in that individual's income.

The benefit derived by an employee from counselling services in respect of an employee's mental or physical health is excluded from income by reason of subparagraph 6(1)(a)(iv) of the Act. Therefore, the benefits provided through employee assistance plans will normally be excluded from income because of this exception.

As explained in Interpretation Bulletin IT-421R2, "Benefits to Individuals, Corporations and Shareholders from Loans or Debt," an employee is deemed to have received a taxable benefit determined in accordance with subsection 80.4(1) of the Act when the employee receives a loan by reason of employment and the interest rate on that loan is less than the rate prescribed by Regulation. The amount of benefit so calculated is included in the employee's income under subsection 6(9) of the Act.

With respect to the waiver of fees customarily charged for banking services, the value of such a benefit received by reason of employment is required to be included in the employee's income under paragraph 6(1)(a) of the Act. The value of such a benefit is the amount by which the amount customarily charged by the financial institution exceeds the amount paid by the employee.

While we trust that our comments will be of assistance to you, we caution you that they do not constitute an advance income tax ruling and accordingly, are not binding upon the Department with respect to any particular transaction.

Yours truly,

John F. Oulton
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch