28 April 2004 External T.I. 2003-0046401E5 - Employee-pay-all 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.

Principal Issues: 1. In an employee-pay-all wage loss replacement plan, where an employer makes a contribution to the plan and includes the amount on the employee's T4 slip, is the payment subject to CPP and EI?

2. Where an employer makes a contribution to an employee's RRSP, is the contribution subject to CPP and EI?

Position: 1. Yes.

2. CPP - Yes; EI - Depends

Reasons: 1. Payment is salary, wages or other remuneration.

2. CPP - amount is taxable. EI - If employee is able to withdraw funds from RRSP, amount is salary, wages, or other remuneration; if employee cannot withdraw funds, the amount is treated as a non-cash benefit.

XXXXXXXXXX T. Young, CA
2003-004640
April 28, 2004

Dear XXXXXXXXXX:

Re: Payroll Deductions

We are writing in response to your letter of October 30, 2003, regarding the above-noted subject. We apologize for the delay in providing our response.

In the context of an "employee-pay-all wage loss replacement plan", as discussed in interpretation bulletin IT-428, Wage Loss Replacement Plans, you inquired whether the payment of premiums by the employer constitutes pensionable earnings for Canada Pension Plan ("CPP") purposes and insurable earnings for Employment Insurance ("EI") purposes. You noted that our technical interpretation letter E2001-010689 states that the payment should be treated as a non-cash benefit and would not be considered insurable earnings. It is your view that this is in conflict with numerous technical interpretations issued by the Canada Revenue Agency ("CRA"), which state that the payment is to be treated as salary or wages. You also inquired about the status of contributions by an employer to an employee's Registered Retirement Savings Plan ("RRSP") for CPP and EI purposes.

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 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. However, we are prepared to provide the following comments, which may be of assistance to you.

As stated in paragraph 17 of IT-428, "where an employee-pay-all plan does, in fact, exist and it provides for the employer to pay the employee's premiums to the plan and to account for them in the manner of wages or salary, the result is as though the premiums had been withheld from the employee's wages or salary." We have reviewed our position in E2001-010689 and discussed the status of the payment of premiums by an employer to an employee-pay-all wage loss replacement plan with the CRA's CPP/EI Eligibility Division. We are now of the view that such a payment is not to be treated as a non-cash benefit for CPP and EI purposes and, therefore, is pensionable and insurable.

With respect to contributions made by an employer to an employee's RRSP, these payments are taxable and are generally CPP pensionable and EI insurable. However, the contributions will be treated as non-cash benefits and will not be EI insurable if the employee cannot withdraw the amounts from a group RRSP until the employee retires or ceases to be an employee of the employer. This position is discussed in section 2.19 of the guide, Employers' Guide: Taxable Benefits 2003-2004.

The documents referred to above may be found on our web site at www.cra.gc.ca. We trust our comments will be of assistance to you.

Yours truly,

Randy Hewlett, B. Comm.

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