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 CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues:
Whether the proposed transactions will affect the status of the existing health and welfare trust as a "health and welfare trust" within the meaning thereof in IT-85R2.
Position:
No, provided the proposed transactions are completed as described.
Reasons:
The amended health and welfare trust will still meet the requirements in IT-85R2.
XXXXXXXXXX 2002-012023
XXXXXXXXXX, 2002
Dear XXXXXXXXXX:
Re: XXXXXXXXXX
Advance Income Tax Ruling
This is in reply to your letter, dated XXXXXXXXXX, in which you requested an advance income tax ruling on behalf of the above named taxpayer. We acknowledge receipt of the additional information provided on XXXXXXXXXX
XXXXXXXXXX
We understand that, to the best of your knowledge, none of the issues involved in the ruling request:
(i) is in an earlier return of the taxpayer 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 taxpayer or a related person,
(iii) is under objection by the taxpayer or a related person,
(iv) is before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired, and
(v) is the subject of a ruling previously issued by the Directorate.
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") and all terms and conditions used herein that are defined in the Act have the meaning given in such definition unless otherwise indicated.
Our understanding of the facts, proposed transactions and the purpose of the proposed transactions is as follows:
Definitions
(a) The "Company" is XXXXXXXXXX;
(b) The "Plan" is the existing Health and Welfare Plan of the Company, which is a Health and Welfare Trust, as defined in paragraph 4 below;
(c) The "Trust" is the XXXXXXXXXX;
(d) "Taxable Canadian corporation" has the meaning assigned by subsection 89(1) of the Act;
(e) The "Partnership" is the partnership arrangement entered into by the Company and XXXXXXXXXX to facilitate certain business activities and which was the subject of advance income tax ruling 2001-010936;
(f) "Public corporation" has the meaning assigned by subsection 89(1) of the Act.
Facts
1. The Company is a taxable Canadian corporation and a public corporation. The Company has its head office in XXXXXXXXXX, files its tax returns with the XXXXXXXXXX Tax Centre and is served by the XXXXXXXXXX Tax Services Office.
2. The Company has a comprehensive employee benefits program. The Plan is part of this comprehensive employee benefits program. The Plan was established subsequent to the receipt of an advance income tax ruling (the "Original Ruling") in XXXXXXXXXX, 1991.
3. The Trust holds, manages, invests and administers contributions to the Plan for the purpose of paying benefits under the Plan in accordance with the terms and conditions thereof.
4. The existing Plan is a "Health and Welfare Trust" within the meaning thereof in paragraphs 5 through 7 of Interpretation Bulletin IT-85R2. The Plan provides health and welfare benefits such as life insurance, medical and dental insurance and short-term disability insurance. The private health services portion of the Plan is a private health services plan, within the meaning thereof in subsection 248(1) of the Act, and includes the medical and dental benefits provided under the Plan. The short term disability benefits portion of the Plan qualifies as a group sickness or accident insurance plan for purposes of subparagraph 6(1)(a)(i) of the Act. Eligibility for benefits is outlined in the Company's benefit program documentation.
5. The Original Ruling provided that the trustees of the Trust would be appointed by the Company and would be selected from current or retired employees, officers and directors of the Company, a Canadian trust company and others who are suitably qualified. It also provided that at least half of the Trustees would consist of current or retired employees or individuals who are independent of the Company. A subsequent advance income tax ruling (the "Revised Ruling") allowed for the appointment of a Canadian trust company or other suitably qualified entity as trustee.
6. The Original Ruling provided that, in connection with the short-term disability benefits, the Company would compute entitlements, determine the amount of deductions to be made from the gross entitlement, determine the amount to be paid to employees, provide computer generated data relative to gross amounts, deductions and net payments to the trustees, administrators or paying agents and assemble information and data relative to these benefits which it has, and provide this data and information to the trustees or administrators. The trustees or administrators would review the data and information provided by the Company, as required, and arrange for benefit payments and the reporting of any taxable benefits to the recipient on form T4A.
Proposed Transactions
7. The terms of the Plan will be amended to include the provision of long-term disability benefits to qualifying employees. The proposed long-term disability benefits will be provided through an insured, or a self-insured, group sickness or accident insurance plan. In respect of an insured plan, the Company will fund the long-term disability benefits with contributions to the Trust, sufficient to purchase annual long-term insurance coverage for the qualifying employees. The Trust will use the contributions received from the Company to pay the premiums applicable to the insurance coverage being purchased. An insurance company that deals at arm's length with the Company will provide the insurance coverage. The annual contributions to the Trust in respect of long-term disability will not exceed the amount required to provide insurance coverage for the current year. In respect of a self-insured plan, the Company will fund the long-term disability benefits with contributions to the Trust that will not exceed the amount required to provide insurance payments for the current year.
8. The Company will enter into certain arrangements with a corporate trustee (the "Corporate Trustee") for the Plan. Under these proposed arrangements, the Corporate Trustee will be charged with determining the amount of any payment to be made out of the Trust and the person to whom the payment will be made. Further, the Corporate Trustee will be granted power to hold and invest the assets of the Trust.
9. However, pursuant to the agency agreements discussed in paragraphs 10 and 13 below, the Company will be required to assume certain obligations as agent of the Corporate Trustee. The Corporate Trustee and the Company propose to enter into specific agency arrangements dealing with the administration of the short-term disability benefits under the Plan and the investment of any assets held in the Trust.
10. Under the terms of the proposed "XXXXXXXXXX", dealing with the administration of the short-term disability plan, the Company, in its capacity as agent of the Corporate Trustee will provide certain clerical, computational, administrative and recording duties. The proposed XXXXXXXXXX will itemize the services that will be provided by the Company, as agent of the Corporate Trustee, including:
(i) The maintenance of member records as required under the proposed trust agreement between the Corporate Trustee and the Company and as required under the Plan;
(ii) The payment of benefits on behalf of the Corporate Trustee, deducting from such payments any taxes to be withheld at source, remitting those taxes to the appropriate authorities on behalf of the Corporate Trustee and preparing the required income and tax statements on behalf of the Corporate Trustee;
(iii) The requisition of the funds required from the Trust to pay the benefits;
(iv) The provision, to the Corporate Trustee and members, of any statements required under the terms of the Plan or existing legislation;
(v) The preparation of any statements required by the Corporate Trustee regarding the members records or the Plan; and
(vi) Any other matters relating to the administration of the Plan as the Corporate Trustee may reasonably require from time to time;
(vii) The performance of all of the above duties, at all times in compliance with all applicable legislation, and advising the Trustee of any changes in any legislation applicable to the Plan or the Trust;
11. From time to time, the Corporate Trustee or a third party appointed by the Corporate Trustee (a "Benefits Auditor") will review some of the payments to participants in the Plan and the process used by its agent, the Company, to verify the accuracy of the payments and that the payments were made in accordance with the terms of the short-term disability Plan. If the Corporate Trustee appoints a Benefits Auditor to carry out this review, the Benefits Auditor will operate at arm's length with the Company. The trust agreement between the Company and the Corporate Trustee will specify that the Corporate Trustee or the Benefits Auditor shall request information from the Company as to the details of claims submitted to the Trust. However, the Corporate Trustee or the Benefits Auditor will not review a claim before the Company has determined whether or not a particular employee is entitled to receive benefits under the terms of the short-term disability Plan. In the event that the Corporate Trustee or the Benefits Auditor determines that the employee was not entitled to receive the benefits under the short-term disability terms of the Plan, the payments will cease immediately. It is anticipated that the recipient will be asked to repay all amounts paid in error.
12. The Company will enter into a separate agreement to act as agent of the Corporate Trustee for the purpose of making investments under the Plan (the "XXXXXXXXXX"). At this time, it is anticipated that the actual selection and monitoring of investments will be delegated to the members of an investment committee.
13. The XXXXXXXXXX will provide that, while the agent will determine and manage the investments held in the Trust, this shall be done in accordance with the terms of the Trust. The trust agreement between the Company and the Corporate Trustee will therefore provide that:
(a) No property of the Trust, whether such property is acquired from the capital or income of the Trust, shall be invested in the shares, notes, bonds, debentures or similar indebtedness issued by:
(i) the Company;
(ii) a person who does not deal at arm's length with the Company; or
(iii) a person who is a member of a group of persons not dealing at arm's length with the Company,
nor shall any such property of the Trust be invested in property which is or will be used directly or indirectly, solely or otherwise, by the Company or any person who does not deal at arm's length with the Company, or who is a member of a group of persons not dealing at arm's length with the Company.
(b) In performing its duties, the Company shall not arrange for, or permit, the investment of the property of the Trust:
(i) whether such property is acquired from the capital or income of the Trust, in the shares, notes, bonds, debentures, or similar indebtedness issued by:
(A) the Company;
(B) a person who does not deal at arm's length with the Company; or
(C) a person who is a member of a group of persons not dealing at arm's length with the Company;
and
(ii) in property which is or will be used directly or indirectly, solely or otherwise, by the Company or any person who does not deal at arm's length with the Company or who is a member of a group of persons not dealing at arm's length with the Company.
With respect to (a) and (b) above, for the purpose of the XXXXXXXXXX, a group of persons is deemed not to be dealing at arm's length with the Company if the persons in the group are related (within the meaning of the Act) and collectively, they control the Company.
14. The Company will remunerate the employees who provide services under the XXXXXXXXXX. The funds in the Trust will not be used or otherwise applied to reimburse the Company for the remuneration paid to its employees in respect of the services that they provide under the XXXXXXXXXX.
Purpose of the Proposed Transactions
The purpose of adding long-term disability benefits to the Plan is to provide ongoing income to any qualifying employee who is unable to work due to sickness or an accident.
The purpose of entering into the XXXXXXXXXX is to enable the Company to provide certain clerical, computational, administrative and recording services in respect of the Trust and the Plan at no cost to the Plan or the Trust. The Company will pay the remuneration of any employees providing any services pursuant to the XXXXXXXXXX.
The purpose of entering into the XXXXXXXXXX is to enable the Corporate Trustee to access the members of the investment committee, who are appointed by the Board of Directors of the Company and possess the investment expertise deemed necessary for the efficient operation of the Plan and the Trust, to assist in the dealing of any investment issues that may arise in connection with the Plan or the Trust.
Rulings
Provided that:
(a) the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions and the purpose of the proposed transactions;
(b) the proposed transactions are completed in the manner described above; and
(c) there are no other transactions which may be relevant to the rulings requested,
our rulings are as follows:
A. The addition of the long-term disability benefits under the Plan, the provision of the clerical, computational, administrative and recording duties pursuant to the XXXXXXXXXX and the provision of the investment services by the Company, delegated to an investment committee, pursuant to the XXXXXXXXXX , will not affect the status of the Plan as a health and welfare trust.
B. Provided that the annual contributions to the Trust, to fund the long-term disability benefits, do not exceed the amount required to purchase insurance coverage for the current year for qualifying employees, such funding of the long-term disability benefits under the Plan will not affect the status of the Plan as a health and welfare trust.
C. Provided that the annual contributions to the Trust, to fund the long-term disability benefits, under a self-insured plan, do not exceed the amount required to satisfy the current year benefits paid to qualifying employees, such funding of the long-term disability benefits under the Plan will not affect the status of the Plan as a health and welfare trust.
These rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R4 issued by the Canada Customs and Revenue Agency ("CCRA") on January 29, 2001, and are binding on the CCRA provided that the proposed transactions are implemented on or before XXXXXXXXXX.
These rulings are based on the Act in its present form and do not take into account any proposed amendments to the Act which, if enacted, could have an effect on the rulings provided herein.
Except as expressly stated, this advance income tax ruling does not imply acceptance, approval or confirmation of any income tax implications of the facts or proposed transactions.
Yours truly,
XXXXXXXXXX
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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