30 November 1995 Ruling 9626033 - FLEX PLAN-XXXXXXXXXX

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:

flex plan ruling - no significant new issues

Position:

ruled as requested

Reasons:

XXXXXXXXXX							962603
XXXXXXXXXX

Attention: XXXXXXXXXX

XXXXXXXXXX, 1996

Dear XXXXXXXXXX

Re: Flexible Benefit Plan
XXXXXXXXXX
Advance Income Tax Ruling Request

We are replying to your letters of XXXXXXXXXX in which you request an advance income tax ruling on behalf of the above noted companies in respect of a proposed flexible benefits program which they propose to implemented for their employees.

Facts

XXXXXXXXXX (the Company) is a public corporation and a taxable Canadian corporation for purposes of the Income Tax Act (the Act.) The Company is engaged in the XXXXXXXXXX.

XXXXXXXXXX are all wholly-owned subsidiaries of the Company and are taxable Canadian corporations within the meaning of the Act.

The Company and XXXXXXXXXX of its subsidiaries currently sponsor a benefit program for their employees which includes, in part:

	-	Extended Health (which qualifies as a private health services plan)
	-	Dental (which qualifies as a private health services plan)
	-	Employee Life Insurance
	-	Spouse Life Insurance
	-	Child Life Insurance
	-	Employee Accidental Death and Dismemberment Insurance ("AD&D")
	-	Spouse AD&D
	-	Non-executive Long Term Disability Insurance ("LTD") 

The current benefit program described above also includes the following benefits which will not be part of the proposed flexible benefits program:

	-	Short Term Disability
	-	Provincial Health Care
	-	Vacation
	-	Pension
	-	Savings Plan
	-	Executive LTD Insurance
	-	Out of Province Emergency Medical Coverage for Business Travel

XXXXXXXXXX which was acquired in XXXXXXXXXX by the Company, currently sponsors a separate benefit program with similar benefits to that of the Company.

Proposed Transactions

The Company and the XXXXXXXXXX subsidiaries (referred to collectively as the Employers and individually as the Employer) propose to modify their current benefit programs for employees so as to create a flexible benefits program (the Flex Plan) which will involve all of the benefits described in paragraph 3 above, as well as three additional new plans. The new plans will comprise a new self-funded medical expense reimbursement plan (the Health Care Plan), optional child life insurance and optional child AD&D insurance.

The Flex Plan will cover the employees of all of the Employers who are in the current program, and those of XXXXXXXXXX who are regular permanent non-seasonal, active employees. XXXXXXXXXX Spousal coverage under the Flex Plan will be extended to the same-sex partner of an employee at that employee's request.

The Flex Plan will operate on a calendar year basis (the Plan Year) and will commence XXXXXXXXXX.

The Flex Plan will operate by way of an annual enrolment by each employee prior to the beginning of the new Plan Year.

The election made by the employee during the annual enrolment process for the next Plan Year will be irrevocable at any time during that Plan Year other than when a significant change in family or employment status as specified in the Flex Plan occurs. The types of changes permitted in respect of the coverage options for each eligible family or employment status change are set out in the Flex Plan documentation.

A mid-year change from permanent full time status to permanent part time status or vice versa will require a new selection of benefits because the amount of Flex Credits, representing the Employer's contribution to benefits will change. XXXXXXXXXX

The employees will be provided with specific coverage options (Flex Options) with respect to each of the benefit plans available under the Flex Plan.

Each Flex Option for each benefit available under the Flex Plan will have a stated cost or "price-tag." The current level of coverage under each of the benefit plans to be administered under the Flex Plan will be denoted as the "Premier Plan" option. Flex Credits are obtained when an employee chooses a Flex Option with a lower "price-tag" than the Premier Plan option. When an employee chooses a Flex Option which provides higher degree of coverage than the Premier Plan option, the "price-tag" will be greater than for coverage under the Premier Plan and the employee will be required to pay the additional cost either through the application of Flex Credits released from other Flex Options or through payroll deductions.

Flex Credits released by choosing a lower level of coverage than that available under the current program in respect of any of the benefit plans described in paragraph 3 can also be used to purchase other benefits in the Flex Plan, including the new optional child life insurance coverage, optional child AD&D coverage and Health Care Plan benefits.

Any Flex Credits that are not used by the employee to obtain coverage under the above-noted benefit plans ("excess credits") will be calculated at the end of the enrolment process in November and will be credited to the employee's account in the new Health Care Plan in equal monthly instalments during the next Plan Year. The crediting of excess credits will be done by way of bookkeeping entries; no actual money will be set aside.

Only those expenses of the employee, the employee's spouse or the employee's dependants that qualify as medical expenses for the purposes of subsection 118.2(2) of the Act and which have not been reimbursed by the provincial medicare plan or the Company's extended health care and dental plans will be eligible for reimbursement out of the Health Care Plan. For this purpose, a dependant of the employee is a person who

-is dependent on the employee for support at any time in the year, and

-is the child or grandchild of the employee or of the employee's spouse, or

-the parent, grandparent, brother, sister, uncle, aunt, niece or nephew, if resident in Canada at any time in the year, of the employee or of the employee's spouse.

The new Health Care Plan will contain the following main terms and provisions:

-The remaining credit balance at the end of a Plan Year can be carried over to the next Plan Year. If not used by the end of the second year, the credits will be forfeited.

-Employees can submit claims for reimbursement larger than their accrued balance of credits available at the time the expense was incurred. However, claims will only be processed quarterly and an employee will only be reimbursed to the extent of the accrued balance in the Health Care Plan at that time. As excess credits accrue during subsequent quarters in the Plan Year in which the expense was incurred, the employee will further be reimbursed for the portion not previously accounted for until the claim is paid in full or until the end of that Plan Year, whichever comes first.

-Claims for medical expenses incurred in the previous Plan Year cannot be carried forward and applied toward new Plan Year balances.

-Employees who are actively at work, become disabled, die or take a leave of absence have 60 days from the calendar year end to submit claims incurred during that calendar year against the balance in existence at December 31 of that year.

-Employees who terminate their employment or retire have 60 days from their last day actively at work to submit claims incurred prior to their termination/retirement date.

In certain cases when an employee chooses additional insurance, the insurance company may require evidence of insurability. When this is the case, any monthly credits earned which would otherwise be applied to the additional insurance coverage will be credited to the Health Care Plan pending approval of the increased insurance coverage. The additional coverage will become effective on the first day of the month following confirmation by the insurance company of insurability at which time the monthly credits required for the additional insurance will cease to be credited to the Health Care Plan and will be applied to the additional coverage instead. In no case will amounts previously credited to the Health Care Plan be used to pay for insurance coverage other than extended health or dental insurance plan coverage.

In the event that employees fail to return their enrolment form during the annual enrolment period, they will be enrolled in a default plan until the next annual enrolment and any excess credits earned will be forfeited.

Purpose of Proposed Transactions

While the current program provides a core level of coverage to all employees and also provides some limited options, the Company is concerned that the current program may not adequately address the needs of the Employers' current workforce and their family situations. A flexible benefits program in the form described above will enable an employee to tailor a benefits package that more closely corresponds with the needs of the employee and his or her family.

The Flex Plan will also enable the Employers to control the costs of providing benefits to the employees and make the employees aware of the extent to which the Employers fund the various benefits.

Other Information

To the best of the Employers' knowledge, none of the issues involved in the requested rulings is being considered by an office of Revenue Canada in connection with a tax return already filed, and none of such issues is the subject of any notice of objection or is under appeal.

Rulings Requested and Given

Provided that the above-mentioned facts and proposed transactions are accurate and constitute complete disclosure of all the relevant facts and proposed transactions, that any documentation governing the plan contains substantially the same provisions as that outlined in the draft documentation submitted on XXXXXXXXXX and that the transaction is carried out as described herein, we rule as follows:

A.Provided that any mid-year re-enrolment arising from a change in employment status is restricted to a change for the remainder of the plan year, the release of Flex Credits to an employee resulting from an election of reduced or nil coverage under one or more of the benefit plans referred to in paragraph 13 above will not, in and of itself, cause an amount to be included in the employee's income for purposes of subsection 5(1) or paragraph 6(1)(a) of the Act.

B.Flex Credits applied by the employee for payment of Flex Options under the Flex Plan will be treated as employer contributions to the Flex Plan for the purpose of paragraph 6(1)(a) of the Act.

C.The proposed Health Care Plan will qualify as a "private health services plan" within the meaning of subsection 248(1) of the Act.

D.Neither the application of excess Flex Credits to an employee's account in the new Health Care Plan nor the payment by the insurance company administrator of eligible claims of the employee within the limits of the Health Care Plan will give rise to a taxable benefit to the employee under paragraph 6(1)(a) of the Act.

E.Neither the application of Flex Credits to extended health care and dental plan options available under the Flex Plan, nor the payment of the premiums by the employer, nor the payment by the insurance company administrator of eligible claims under these plans will give rise to a taxable benefit to the employee under paragraph 6(1)(a) of the Act.

F.The application of Flex Credits to employee, spouse or child accidental death and dismemberment plan options available under the Flex Plan will not give rise to a taxable benefit under paragraph 6(1)(a) of the Act.

G.The payment by the employer of life insurance premiums in respect of the Employer's group term life insurance policy as a result of the application of Flex Credits to the employee life insurance plan will give rise to a taxable benefit to the employee for the year to the extent provided by subsection 6(4) of the Act.

H.The payment by the employer of life insurance premiums in respect of the life insurance on the life of an employee's spouse or children as a result of the application of Flex Credits to the spouse or child life insurance plan will give rise to a taxable benefit to the employee for the year to the extent provided by paragraph 6(1)(a) of the Act.

I.Outlays or expenses made or incurred by an Employer in connection with the Flex Plan for the purpose of providing benefits to its employees and the families of its employees, will be deductible in computing the income of the Employer for the taxation year in which they were made or incurred, as the case may be, pursuant to section 9, subject to the limitations in paragraph 18(1)(a) and subsection 18(9) of the Act.

J.The Flex Plan will not constitute a salary deferral arrangement, retirement compensation arrangement or employee benefit plan within the meaning of such terms under the Act.

These rulings are given subject to the general limitations and qualifications set forth in Information Circular 70-6R2 dated September 30, 1990 and special release thereto dated September 30, 1992 issued by the Department of National Revenue and are binding provided the proposed Plan is implemented by XXXXXXXXXX.

We trust our comments will be of assistance to you.

Yours truly,

for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

XXXXXXXXXX