2 October 2000 External T.I. 2000-0039355 - HEALTH AND WELFARE TRUSTS

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: Would certain amendments to health and welfare trusts be appropriate? In particular, if the trust has a surplus could additional health and welfare plans of the employer be funded through the trust?

Position: Providing the amended Health and Welfare Trust is restricted to using its funds for the items listed in paragraph 1 of IT-85R2, the trust would continue to be an acceptable health and welfare trust.

Reasons: The purpose of a health and welfare trust is to provide specified health and welfare benefits to an employer's employees. Providing the additional benefits to the employees are within those specified in the bulletin, the purpose of the health and welfare trust rules is maintained.

XXXXXXXXXX 2000-003935
J. E. Grisé
Attention: XXXXXXXXXX

October 2, 2000

Dear Sirs:

Re: Health and Welfare Trusts

This is in reply to your letter of July 25, 2000, requesting our opinion on the appropriateness of amendments to health and welfare trusts.

Written confirmation of the tax implications inherent in a particular transaction is given by this Directorate only where the transaction is proposed and is the subject matter of an advance ruling request submitted in the manner set out in the attached Information Circular 70-6R3, Advance Income Tax Rulings. The following comments are, therefore, of a general nature only, and are not binding on the Agency.

For discussion purposes, you have asked us to consider a health and welfare trust that was established for the purpose of self-insuring disability benefits in association with an employer-paid group long-term disability plan. The employer now wishes to self-insure employer-paid group medical and dental benefits through the trust. The private health services plan would require the employer to make regular and adequate contributions to the trust to provide for the funding of the new private health services plan benefits. All trust assets and employer contributions would be co-mingled within the health and welfare trust. All contributions to the trust would be actuarially determined to provide current year disability and medical/dental plan coverage to active employees.

Generally, a health and welfare trust contemplated in Interpretation Bulletin IT-85R2, Health and Welfare Trusts for Employees, (the bulletin) is a trust arrangement under which the trustees receive contributions from an employer to provide health and welfare benefits as have been agreed to between the employer and the employees. As indicated in paragraph 5 of the bulletin, if the benefit programs adopted are limited to those described in paragraphs 1(a) to (d) of the bulletin and the arrangement meets the conditions set out in paragraphs 6 and 7 of the bulletin, the trust arrangement is one that is referred to in the bulletin as a health and welfare trust.

In our view, an existing health and welfare trust that is amended to provide benefit programs described in paragraphs 1(a) to (d) of the bulletin would continue to be a health and welfare trust as described in the bulletin. This would be the case even if the trust had developed an actuarial surplus. It is understood that in the latter situation, no contributions would be made to the trust by the employer until the surplus has been eliminated.

We hope our comments are helpful.

Yours truly,

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

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