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: What is the taxable status of a wage loss replacement plan where the employer pays the premium on behalf of employees?
Position: Determination can only be made with reference to the plan documents.
Reasons: The status of a plan as an employee pay-all plan is not affected because the employer actually pays the premium, provided the plan is set-up as an employee pay-all plan and the premium is recovered from the employees through payroll deductions or the employer includes the amount in the employees' income.
XXXXXXXXXX Randy Hewlett
613-941-7239
2005-014059
July 14, 2005
XXXXXXXXXX:
Re: Wage Loss Replacement Plans
We are writing in response to your letter of July 6, 2005 on the above noted issue.
You had two inquires. The first dealt with the status of wage loss replacement plans for purposes of the Canada Pension Plan, the Employment Insurance Act and the Quebec Pension Plan. We have forwarded this inquiry to the CRA's CPP/EI Eligibility Division and they will reply under separate cover. Our comments below concern your second inquiry on the taxable status of a wage loss replacement plan under the Income Tax Act (the "Act") where the employer pays the premium on behalf of employees.
Subparagraph 6(1)(a)(i) of the Act excludes from an employee's income the value of benefits derived from the contributions of an employer to certain employer-sponsored arrangements including, among others, group sickness or accident insurance plans. However, paragraph 6(1)(f) of the Act applies to include in employment income any benefits paid to an employee from a sickness, accident, disability or income maintenance insurance plan (commonly referred to a wage loss replacement plan) where the employer pays all or part of the premiums for the plan. The amount of the benefit included in income is reduced by the amount, if any, of employee contributions. Where employees are legally obligated to pay the entire premium cost of a wage loss replacement plan (an "employee pay-all plan"), no amount is required to be included in the employees' income under paragraph 6(1)(f) of the Act.
The status of a plan as an employee pay-all plan is not affected because the employer actually pays the premium, provided the plan is set-up as an employee pay-all plan and the premium is recovered from the employees through payroll deductions or the employer includes the amount in the employees' income. Whether or not a particular plan is considered an employee pay-all plan can only be determined by reference to the plan documents. For more information on the tax implications of these plans, you may wish to consult Interpretation Bulletin IT-428, Wage Loss Replacement Plans, which is available on our website at http://www.cra-arc.gc.ca/E/pub/tp/it428/README.html.
We trust our comments will be of assistance to you.
Yours truly,
Randy Hewlett
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch
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