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: Interaction of new ELHT regime with existing HWT regime
Position: Both will exist
2010 CTF November 28, 2010
Employee Life and Health Trusts
Question 22
On August 27, 2010, the Department of Finance released revised legislative proposals to accommodate new employee benefit arrangements called employee life and health trusts (ELHTs).(note 1) The proposals (which, if passed, will apply to trusts established after 2009) create a new type of taxable inter vivos trust that will enable funds to be accumulated within the ELHT by employer contributions for employees' health benefits. The proposals have been included in Bill C-47, which is currently before Parliament.(note 2) How do these proposals affect the CRA's administrative position as set out in Interpretation Bulletin IT-85R2?(note 3)
Response 22
The CRA currently has no plans to withdraw IT-85R2.
Over the years, the CRA has identified tax issues involving the use of health and welfare trusts (HWTs), primarily in non-arm's-length shareholder-employee situations. Examples include the use of offshore trusts and over-funding of benefits through lump-sum payments by employers. Further information is contained in Income Tax Technical News no. 25.(note 4) The CRA remains diligent in ensuring that HWTs fully comply with the administrative regime. The minister of finance has now tabled draft legislation on ELHTs, which will give effect to many of the CRA's administrative positions in IT-85R2 and will deal with the tax issues previously identified by the CRA.
The interaction of the ELHT proposals and the HWT regime nevertheless raises some complex issues that warrant further review. The ELHT proposals apply only to trusts created after 2009. In addition, there is no specific conversion mechanism in the income tax rules that would enable HWTs to convert into ELHTs. For these reasons, the CRA intends to maintain its position regarding HWTs at this time.
Notes:
(1) Canada, Department of Finance, Legislative Proposals Relating to the Income Tax Act, the Air Travellers Security Charge Act, the Excise Act, 2001 and the Excise Tax Act (Ottawa: Department of Finance, August 2010).
(2) Bill C-47 received royal assent on December 15, 2010; SC 2010, c. 25.
(3) Interpretation Bulletin IT-85R2, "Health and Welfare Trusts for Employees," July 31, 1986.
(4) Income Tax Technical News no. 25, October 30, 2002.
Renée Shields
2011-042476
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