2000 Ruling 2000-0022473 - FLEX BENEFIT PROGRAMS

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.

XXXXXXXXXX
XXXXXXXXXX 2000-002247
XXXXXXXXXX

Attention: XXXXXXXXXX

XXXXXXXXXX, 2000

Dear Sirs:

Re: Advance Income Tax Ruling
Flexible Benefit Plan
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX

We are writing in response to your letters of XXXXXXXXXX, in which you requested an advance income tax ruling on behalf of the above noted companies in respect of proposed changes to their flexible benefit plan (the "Flex Plan"). The Flex Plan was previously the subject of an advance income tax ruling (our reference number - 962603) issued on XXXXXXXXXX, 1996 (the "1996 Ruling").

To the best of your knowledge, and that of the taxpayers involved, none of the issues contained herein:

(i) is in an earlier return of the companies or a related person;

(ii) is being considered by a tax services office or taxation centre in connection with a previously filed tax return of the companies or a related person;

(iii) is under objection by the companies or a related person; and

(iv) is before the courts or, if a judgement has been issued, the time limit for appeal to a higher court has not expired.

Unless otherwise stated, all references to a statute are to the Income Tax Act R.S.C. 1985 (5th Supplement), c.1, as amended, (the "Act").

Our understanding of the facts and proposed transactions is as follows:

Statement of Facts

1. XXXXXXXXXX (the "Company"), which was formerly known as XXXXXXXXXX, is a public corporation and a taxable Canadian corporation for purposes of the Act. XXXXXXXXXX. The common shares of the Company are listed on the XXXXXXXXXX. The Company's name was changed from XXXXXXXXXX, are all wholly-owned subsidiaries of the Company and are taxable Canadian corporations within the meaning of the Act.

2. The Company and its subsidiaries noted in 1 above (referred to herein collectively as the "Employers" and individually as the "Employer") sponsor a comprehensive benefits program for employees of which the Flex Plan is a major component. The Flex Plan operates on a calendar year basis ("Plan Year") in the manner described in the 1996 Ruling.

3. As indicated in the 1996 Ruling, the Flex Plan includes a number of plans including the private Health Care Plan ("HCP"). The HCP qualifies as a private health services plan, as defined in subsection 248(1) of the Act. Any flex credits that are not used by employees to obtain coverage under the benefit plans ("excess credits") are calculated at the end of the enrollment process in XXXXXXXXXX and credited to the employees' accounts in the HCP in equal monthly installments during the next Plan Year. The crediting process is done by way of bookkeeping entries; no money is actually set aside. Employees who terminate their employment or retire, have 60 days from their last day actively at work to submit HCP claims incurred prior to their termination/retirement date.

Proposed Transactions

4. The Employers propose to amend the Flex Plan to change the allocation of credits to the employees' HCP accounts. Rather than crediting the excess credits in equal monthly installments to the employees' HCP accounts during the Plan Year, the credit allocation will be changed to a one-time credit in the first month of the Plan Year. The excess credits will continue to be done by way of bookkeeping entries; no actual money will be set aside. Employees can submit claims and these claims will be satisfied to the full extent of the annual credits. Adjudication of the claims will remain on a quarterly basis.

5. Employees who terminate employment during the Plan Year and have fully utilized their annual HCP amount will be required to reimburse their Employers for the overpayment as a result of the proration of the excess credits. Such overpayment will be deducted from the terminating employee's final paycheque as an after tax deduction. Employees who terminated their employment and have not fully utilized their annual HCP amount, will have their HCP amount prorated to the date of termination. The Employers will notify the HCP service provider to adjust the annual HCP amount to reflect the proration.

Purpose of Proposed Transactions

6. Under the current plan, excess credits are allocated to the employee's HCP account in equal monthly installments during the next Plan Year. Employees can submit a claim that is larger than his or her accrued balance of credits. However, claims are satisfied only to the extent of the accrued balance in the HCP account from time to time in the Plan Year. The administration of this process has proven to be time-consuming, especially since the monthly allocations are often quite small in dollar value. Therefore, the Employers would like to implement an annual allocation.

Ruling Requested and Given

Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts, proposed transactions, and purpose of the proposed transactions, and provided that the proposed transactions are completed in the manner described above, we confirm that if an employee terminates employment during the Plan Year and reimburses the Employer for an overpayment by way of a deduction from the employee's final paycheque in the manner described in 5 above, such deduction will not reduce the employee's income from employment from any of the Employers for the year.

This ruling is given subject to the general limitations and qualifications set forth in Information Circular 70-6R3 dated December 30, 1996, and is binding on the Canada Customs and Revenue Agency, provided the proposed transactions are completed by XXXXXXXXXX.

The above ruling is based on the law as it presently reads and does not take into account any proposed amendments to the Act which, if enacted into law, could have an effect on the ruling provided herein.

Yours truly,

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