10 September 2001 External T.I. 2001-0089195 - HEALTH AND WELFARE TRUST AMENDMENTS

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: Whether a Health and Welfare trust can be amended retroactively to allow for an increase in the benefits for the LTD benefits and to reimburse the employer taxpayer an amount representing the cost of short term disability benefits that the employer paid in the first part of the year that the Health and Welfare trust will now assume.

Position: Concern with retroactive amendment.

Reasons: potential to undoing tax consequences

XXXXXXXXXX 	C. Tremblay, CMA
		2001-008919
September 10, 2001

Dear XXXXXXXXXX:

This is in response to your letter of June 14, 2001, in which you requested our opinion of the tax consequences of a proposed arrangement whereby an existing health and welfare trust is presently in an actuarial surplus. The health and welfare trust provides group long-term disability (LTD) benefits to employees. The employer and the employees share the costs of these benefits. No current contributions are being remitted to the trust while the health and welfare trust is in a surplus position, however, the employer and trustees are considering amending the health and welfare trust documents to increase LTD benefits and take responsibility for the cost of short term disability benefits which had been the sole responsibility of the employer. The proposed amendments would be effective retroactively from January 1, 2001. Once the trust and associated documents are amended, the trust will reimburse the employer an amount representing the cost of short-term disability benefits that the employer paid in the first part of 2001.

Our Comments

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 ruling request submitted in the manner set out in Information Circular 70-6R4. The following comments are, therefore, of a general nature only.

Health and welfare plans vary greatly in substance and we generally find it necessary to review the documents of a particular plan before making specific comments. As a copy of a plan document has not been provided to us, our comments are necessarily limited in scope and general in nature.

Generally, a health and welfare trust contemplated in Interpretation Bulletin IT-85R2, Health and Welfare Trusts for Employees, 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. However, in our view, an amendment to a plan cannot undo the past and convert something which has already happened, and to which legal consequences have already been attached, into something else. In addition, neither the employer nor the trustees can reverse or negate the application of subsections 5(1) and/or 6(1) of the Act by effecting a reimbursement to the employer for benefits previously covered solely by the employer where the original agreement did not clearly state that the obligation for the benefits rested with the health and welfare trust.

We trust that these comments will be of assistance. Should you wish to pursue the matter further by way of advance income tax ruling, please refer to Information Circular IC-70R4, and include a copy of the health and welfare plan documents and the proposed amending agreements.

Yours truly,

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