17 July 2001 External T.I. 2001-0082615 - VARIOUS BENEFIT PLANS

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:

Are premiums paid by a corporation to certain insurance and/or health services plans on behalf of employees and owners a taxable benefit?

Position:

Question of fact, which can only be resolved by examining each agreement.

Reasons:

Subparagraph 6(1)(a)(1), Paragraph 6(1)(f), Subsection 6(4), Subsection 15(1), Paragraph 18(1)(a) Subsection 248(1), Regulations 2700 to 2705, IT-227R, IT-339R2 and IT-428.

XXXXXXXXXX 	2001-008261
		Randy Hewlett, B.Comm.
July 17, 2001

Dear XXXXXXXXXX:

Re: Various Benefit Plans

We are writing in response to your letter dated April 23, 2001, wherein you requested our opinion on whether payments by XXXXXXXXXX to different plans result in taxable employment benefits as follows:

XXXXXXXXXX.

The first three plans you indicate are for the benefit of full-time employees. The service providers have advised you that they are considered private health services plans. The fourth plan you indicate is for the benefit of the XXXXXXXXXX owners. The Ministry of Health has advised you that it is considered a "Government Plan."

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office.

The determination of the status of a particular plan for purposes of the Income Tax Act (the Act) is a question of fact to be determined in the circumstances. In order to make such a determination, the agreement(s) for each plan would have to be reviewed. However, we are prepared to provide the following comments.

Subparagraph 6(1)(a)(i) of the Act excludes from an employee's income the value of benefits derived from an employer's contributions to specific employer-sponsored arrangements. Exclusions from an employee's income under subparagraph 6(1)(a)(i) of the Act include benefits arising form an employer's contributions to a group sickness or accident insurance plan, private health services plan and group term life insurance policy.

A private health services plan (PHSP) is defined in subsection 248(1) of the Act. Interpretation Bulletin IT-339R2, Meaning of Private Health Services Plan, dated August 8, 1989 provides information on such plans. Paragraph 3 of IT-339R2 specifies that a PHSP qualifying under the definition in subsection 248(1) of the Act must contain (i) an undertaking by one person, (ii) to indemnify another person, (iii) for an agreed consideration, (iv) from a loss or liability in respect of an event, (v) the happening of which is uncertain. Paragraph 4 of IT-339R2 indicates that coverage must be in respect of hospital care or expense or medical care or expense which normally would otherwise have qualified as a medical expense under the provisions of subsection 118.2(2) of the Act in the determination of the medical expense tax credit.

The definition of a group term life insurance policy is contained in subsection 248(1) of the Act. Where at any time in a taxation year, an employee's life is insured under a group term life insurance policy, subsection 6(4) of the Act requires the inclusion in income from an office or employment a "prescribed" amount in respect of the insurance. The prescribed amount is determined under sections 2400 to 2705 of the Income Tax Regulations. The Employers Guide: Taxable Benefits 2000-2001, contains more information on this topic.

Where an employer contributes to group sickness or accident insurance plans there is no amount included in the income of the employee. Paragraph 6(1)(f) of the Act, however, generally requires that an employee include in income amounts paid from these plans. Interpretation Bulletin IT-428, Wage Loss Replacement Plans, dated April 30, 1979 explains this subject in more detail.

Where a particular benefit is made available only to shareholders, there is a presumption that the benefit is made to the individual in his or her capacity as a shareholder. In such a case, the premiums paid to insurance and/or health services plans are not deductible by the employer pursuant to paragraph 18(1)(a) of the Act and the exclusions in paragraph 6(1)(a)(i) do not apply. In such a case, the premiums would be included in income of the shareholder under subsection 15(1) of the Act.

You may wish to seek professional tax advice in regard to your particular plans. You may find our publications on our website at http://www.ccra-adrc.gc.ca.

We trust our comments will be of assistance to you.

Yours truly,

John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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