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:
Does a LTD benefit received from a CPC former employee taxable or non-taxable? POSITION TAKEN:
Taxable under 6(1)(f).
Reasons FOR POSITION TAKEN:
Company President letter
Par 6 of IT 428
Pay stubs
March 8 2000
HALIFAX TSO HEADQUARTERS
Client Services Division C. Tremblay
957-2139
Attention: Michael A. Moir
1999-001576
Long Term Disability Benefits
This is in reply to your memorandum of December 23, 1999, and further to subsequent information faxed to us on February 3, 2000, requesting our views on whether the receipt of long term disability ("LTD") benefits are taxable pursuant to paragraph 6(1)(f) of the Income Tax Act (the "Act") in the situation described.
You describe a situation where XXXXXXXXXX is receiving LTD benefits. XXXXXXXXXX was an employee of XXXXXXXXXX and was to be reimbursed 100% for the LTD premiums paid. The reimbursement was not reflected as a taxable benefit on the T-4 slip.
Whether or not a particular LTD plan is an employee pay-all plan would involve a finding of fact that can only be determined after reviewing the terms of the plan and any related documents. We were only supplied with the Benefit Program for Exempt Employees which is part of the printed matter containing the Terms and Conditions of Employment for Exempt Employees. The prime factor in determining whether or not an employee pay-all plan exists is dependent upon the existence of a requirement, either in the policy of insurance or an employee's contract of employment, that places upon the employee the legal obligation to pay one hundred percent (100%) of the required premiums. The manner in which payments are deducted, remitted to the carrier and accounted for by the employer does not, in and by itself, determine whether or not the plan is an employee pay-all plan.
Where it is apparent that a plan was instituted with the intention or for the purpose of providing wage loss replacement benefits, the assumption will be that it is a plan to which paragraph 6(1)(f) of the Act applies unless the contrary can be established.
The XXXXXXXXXX Benefit Program for Exempt Employees (an Exempt Employee is defined as an employee not hired on term contract who occupies a position approved by the Board and is not included in a certified bargaining unit) shows that under XXXXXXXXXX Long Term Disability, exempt employees are covered under LTD Insurance. The plan provides income if the employee is unable to work during an extended period of illness or injury and has exhausted his sick leave credits.
The taxpayer and his legal representative believe that the LTD plan is an employee pay-all plan because of the provision of paragraph XXXXXXXXXX of the XXXXXXXXXX Benefit Program for Exempt Employees, XXXXXXXXXX, which states that the premium costs will be reimbursed to the employee by the employer. In the representative's opinion, this indicates that the employee will be regarded as paying the premium and then will be reimbursed as a benefit from employment. We cannot agree; a reimbursement under these circumstances does not necessarily make it an employee pay-all plan. In our view, in order for it to be an employee-pay-all plan, there should be a legal requirement for the employee to pay the premium. To date, this legal requirement has not been shown. The wording in paragraph XXXXXXXXXX of the XXXXXXXXXX Benefit program for Exempt Employees states that XXXXXXXXXX "will reimburse 100% of premium costs for Long Term Disability Insurance". This is not, in and by itself, evidence that there is a legal requirement for the employee to pay the premium. We would need to see the policy of insurance. The fact that the employer pays the premiums directly to the insurance company (see comments below) is not consistent with the concept of "reimbursement" and would seem to suggest that this is an arrangement between the insurer and the employer. It is quite possible that the policy of insurance is silent with respect to any employee obligation with respect to premiums.
We note that XXXXXXXXXX is listed as a crown corporation. Generally, crown corporation employees are subject to the same LTD plan that is available to the public service. The Public Service Management Insurance Plan provides public service employees excluded from collective bargaining with group life insurance, accidental death and dismemberment insurance, dependants' insurance, and long term disability insurance. It is possible that this is the plan that XXXXXXXXXX was covered under. If so, The National Life Insurance Company of Canada is the principal insurer under the plan and if an individual qualifies for the LTD benefits, the amounts received are subject to tax. In any event, the employer should be able to provide the group policy number and confirm whether in fact the LTD policy is part of the Public Service Management Insurance Plan.
XXXXXXXXXX in a letter dated December 6, 1999, states that the premium is 100% paid by XXXXXXXXXX and that the LTD plan provided employer-paid coverage to XXXXXXXXXX. He confirms that the premiums paid on XXXXXXXXXX behalf were not included in his employment income as a taxable benefit. In a letter dated October 26, 1999, XXXXXXXXXX confirms that XXXXXXXXXX paid the premiums directly to National Life, the insurance company.
Accordingly, from the information you sent us and from the letters you included from the employer, it is our initial reaction that the LTD plan would not be an employee pay-all plan and any benefits received under the plan would be taxable under paragraph 6(1)(f) of the Act. If you wish to receive a definitive response, please provide us with the terms of the plan and the contract of insurance indicating the group policy number and other related documents.
For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Legislation Access Database (LAD) on the Agency's mainframe computer. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the LAD version, or they may request a copy severed using the Privacy Act criteria, which does not remove client identity. Request for this latter version should be made by you to Jackie Page at (819) 994-2898. The severed copy will be sent to you for delivery to the client.
We trust you will find our comments of some assistance.
for Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch
- 3 -
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2000
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2000
Email this Content