15 February 2007 External T.I. 2006-0206951E5 - Maternity or Parental Leave Top-up Plan

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:

Whether benefits from a maternity or parental leave top-up plan can be paid from an existing Health and Welfare Trust.

Position:

No.

Reasons:

Payments from maternity or parental leave top-up plans are considered regular employment income of the employee under section 5. Benefits that are considered regular employment income under section 5 cannot be paid out of a Health and Welfare Trust regardless of whether the plan meets the criteria of a group accident or sickness insurance plan or not.

									2006-020695
XXXXXXXXXX 								D. Tiu
(613) 957-8961
February 15, 2007

Dear XXXXXXXXXX:

Re: Maternity and Parental Leave Top-up Plans

We are writing in response to your September 22, 2006 letter on the above subject and further to our subsequent telephone discussions (XXXXXXXXXX/Tiu). You inquired whether a proposed "supplemental health-related maternity benefit plan" (the "Proposed Plan") is a "group accident or sickness insurance plan" for purposes of the Income Tax Act (the "Act"). More specifically, you are asking whether the benefits under the Proposed Plan can be paid from an existing Health and Welfare Trust as described in Interpretation Bulletin IT-85R2, Health and Welfare Trusts for Employees. You described the Proposed Plan as a maternity leave top-up plan to supplement Employment Insurance maternity benefits of employees.

The particular situation in your letter appears to relate to a factual one, involving a specific taxpayer. As explained in Information Circular 70-6R5, it is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an Advance Income Tax Ruling. Should your situation involve a specific taxpayer and a completed transaction, you should submit all relevant facts and documentation to the appropriate Tax Services Office for their views. However, we are prepared to provide the following general comments.

As stated in IT-85R2, a Health and Welfare Trust is a trust arrangement used to administer an employee health and welfare benefit program that is restricted to

(a) a group sickness or accident insurance plan,

(b) a private health services plan,

(c) a group term life insurance policy, or

(d) any combination of (a) to (c).

The term "group sickness or accident insurance plan" is not defined in the Act and therefore, its meaning would generally be interpreted in the context of legislation that regulates the insurance industry in the relevant jurisdiction. On the other hand, maternity and parental leave top-up plans that are fully funded by an employer are not supplementary unemployment benefit plans as defined in the Act. However, payments from such top-up plans are considered regular employment income of the employee under section 5 of the Act. Benefits that are considered regular employment income under section 5 of the Act cannot be paid out of a Health and Welfare Trust regardless of whether the plan meets the criteria of a group accident or sickness insurance plan.

We trust that our comments will be of assistance to you.

Yours truly,

Gwen Moore
Section Manager
For Division Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch