5 March 1997 External T.I. 9641395 - WAGE LOSS REPLACEMENT PLAN

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:

Will the payment of an employee's personal expense in the form of a contribution to the employee's "employee-pay-all wage loss replacement plan" disqualify the employee-pay-all plan status.

Position:

No.

Reasons:

The amounts paid are the responsibility of the employee per the plan and it is clear that a taxable benefit will be included in the employee's income with respect of the employer payment on behalf of the employee.

	                            		964139
XXXXXXXXXX	                           Jacques E. Grisé

Attention: XXXXXXXXXX

March 5, 1997

Dear Sirs:

Re: Taxation of Wage Loss Replacement Plan

This is in reply to your letter of December 11, 1996 requesting our comments with respect to an employee-pay-all wage loss replacement plan.

You describe a situation where an employer wishes to provide employees with additional funds for contribution towards their employee-pay-all wage loss replacement plan. We assume that the plan in existence is, in fact, an employee-pay-all plan, as discussed in paragraphs 16 to 21 of Interpretation Bulletin IT-428, Wage Loss Replacement Plans. One method you are contemplating to achieve the desired result is to make a cash payment to the employees who in turn would simultaneously apply the amount toward the cost of their wage loss replacement plan. The cash payment would be treated as additional remuneration to the employees for tax purposes. Alternatively, the employer would apply the amount directly towards the cost of the employees' wage loss replacement plan. Any amount so applied would be treated as a payment by the employer of a personal expense on behalf of the employees, and would be reported as additional remuneration for tax purposes.

In our view, the two alternative methods of reporting taxable income would be acceptable, and neither would jeopardize the employee-pay-all status of the wage loss replacement plan. In this respect, please refer to paragraph 17 of Interpretation Bulletin IT-428.

Yours truly,

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