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.
Taxation of premiums and benefits of a self-funded short-term disability plan.
General comments provided.
XXXXXXXXXX T. Young, CA
March 31, 2003
Re: Self-funded Short-term Disability Program
We are writing in response to your letter of January 28, 2003, regarding the proposed changes to the company's Short-term Disability Program (the "STD Program").
In your letter you describe the proposed STD Program as follows:
1. In Quebec, the STD Program will be funded entirely by the employer. The employees will not pay any premiums in respect of the STD Program.
2. In all other provinces, where the employer operates, the plan will be funded entirely by the employees. The premiums will be deducted from the employees' pay cheques each payday. The funds will be allocated to a specific general ledger account in the employer's general operating funds, but will not be deposited in a trust account.
The STD Program will be administered by XXXXXXXXXX (an insurance company) for claims adjudication only. Applications for benefits under the STD Program will be submitted by the employee to XXXXXXXXXX, which will determine if the employee will be eligible for benefits (up to XXXXXXXXXX). If the claim is accepted, XXXXXXXXXX will notify the employer of the amount of the benefit to be paid.
You have asked us the following questions:
1. Are all benefits under the STD Program considered taxable employment income and reportable on the employee's T4 in all provinces, including Quebec?
2. Are these benefits subject to Canada Pension Plan ("CPP") contributions and Employment Insurance ("EI") premiums in all provinces, including Quebec?
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 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. This would require, among other things, an examination of all plan documents. However, we are prepared to provide the following comments, which may be of assistance to you.
Employees working in Quebec
Although we do not have sufficient information to make a final determination, the portion of the Plan for Quebec employees would probably be taxable pursuant to paragraph 6(1)(a) of the Act. The benefits would likely be insurable earnings for EI purposes; however, a final determination cannot be made without examining the plan documents.
We cannot comment on whether benefits under the Plan are pensionable earnings for purposes of the Quebec Pension Plan ("QPP") as this is the responsibility of Revenue Quebec. Any questions regarding the QPP should be directed to Revenue Quebec.
Employees outside Quebec
We do not have sufficient information to comment on whether the benefits paid out of the Plan would be taxable. For instance, it may be a wage loss replacement plan. If it is, the income tax treatment of the benefits would be as discussed in interpretation bulletin IT-428, Wage Loss Replacement Plans. Consequently, we are also unable to comment on whether or not benefits paid under this portion of the Plan would be subject to CPP contributions or EI premiums.
As this is a proposed change to a plan, you may wish to consider submitting an advance income tax ruling request on the matter. With respect to questions on CPP or EI, they should be directed to your local Tax Services Office.
The documents referred to above may be found on our web site at www.ccra.gc.ca.
We trust our comments will be of assistance to you.
John Oulton, CA
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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