8 July 2013 External T.I. 2013-0482151E5 - AD&D and CI Premiums paid by a trust

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 paragraph 6(1)(e.1) of the Act applies to the premiums paid by a trust to an insurer for a group accidental death and dismemberment insurance plan and a group critical illness insurance plan?

Position: It is a question of fact, but likely yes.

Reasons: The CRA administratively looks at the particular plan provided through a health and welfare trust to determine whether premiums paid by the administrator are taxable to the employee. Paragraph 6(1)(e.1) of the Act likely applies where the plan provided through the health and welfare trust is a group sickness and accident insurance plan and the benefits are not payable on a periodic basis.

XXXXXXXXXX
2013-048215
C. Underhill

July 8, 2013

Dear XXXXXXXXXX:

Re: Accidental Death and Dismemberment and Critical Illness Premiums Paid by a Trust

We are writing in response to your email of March 6, 2013, concerning the tax consequences of certain employer-sponsored group benefits. More specifically, you have enquired whether paragraph 6(1)(e.1) of the Income Tax Act ("Act") applies to the premiums paid by a trust to an insurer for a group accidental death and dismemberment ("AD&D") insurance plan and a group critical illness ("CI") insurance plan.

In the situation you described, an employer provides group health and welfare benefits such as a group AD&D insurance plan and a group CI insurance plan to its employees through a trust. The employer contributes the monthly group premiums to the administrator of the trust. The administrator of the trust pays the monthly group premiums to the insurer (presumably, an insurance company).

Our Comments

Employment benefits, whether provided in cash or in-kind, are generally included in an employee's income under the Act. However, there are a number of exceptions in the Act, such as where the employer provides certain health and welfare benefits to its employees through insurance plans.

Where these types of benefits are not provided by an employer to its employees directly through an insurance plan, there are no specific provisions in the Act to exclude such benefits from an employee's income. The Canada Revenue Agency ("CRA") administratively allows employees to benefit from a trust arrangement as long as the particular trust established by the employer qualifies as a health and welfare trust ("HWT") as described in Interpretation Bulletin, IT-85R2, Health and Welfare Trusts for Employees. A particular trust would not qualify as a HWT where the benefits provided by such a trust are not restricted to the type of benefits described in paragraph 1 of IT-85R2 (i.e., a group sickness or accident insurance plan ("GSAI Plan") , a private health services plan ("PHSP"), a group term life insurance policy, or any combination thereof).

The CRA does not consider an employee to have received or enjoyed a benefit at the time the employer makes the contribution to the HWT. To determine if and when an employee receives or enjoys a benefit from group health and welfare benefits provided through a HWT, each individual plan in the HWT must be looked at separately. The CRA treats the contributions made by the HWT to the individual plans in the same manner as if the contributions were made by the employer. For example, under paragraph 6(1)(a)(i) of the Act, premiums paid by an employer to a PHSP are not included in an employee's income. Therefore, if the HWT pays premiums to a PHSP, the CRA will apply 6(1)(a)(i) of the Act and not include the premiums in the employee's income.

Paragraph 6(1)(e.1) of the Act includes the amount of an employer's contributions to a GSAI Plan in an employee's income for the year in which the contributions are made to the extent that the contributions are not in respect of a wage-loss replacement benefit payable on a periodic basis. Paragraph 6(1)(e.1) applies in respect of employer contributions made on or after March 29, 2012, to the extent that the contributions relate to coverage after 2012, except that such contributions made on or after March 29, 2012, and before 2013 will be included in the employee's income for 2013.

The meaning of "GSAI Plan" used in paragraph 6(1)(e.1) is not defined in the Act. A GSAI Plan may be described very generally as an arrangement between an employer and employees under which provision is made for indemnification of an employee if an employee suffers a loss as a consequence of sickness, maternity or accident. As insurance products vary broadly in their terms and conditions, it must always be kept in mind that the characterization of a particular plan, depends upon all the terms and conditions of the plan and the applicable insurance legislation.

The determination of whether paragraph 6(1)(e.1) of the Act applies to premiums paid to a particular plan is a question of fact. It is our understanding that benefits under AD&D and CI insurance plans are generally payable on a lump sum basis. In our view, paragraph 6(1)(e.1) of the Act would likely apply to premiums paid by a HWT to a group AD&D insurance plan or group CI insurance plan that is a GSAI Plan on the assumption that the benefits under those plans are not payable on a periodic basis.

Yours truly,

Nerill Thomas-Wilkinson, CPA, CA
Manager
for Director
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch