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. Whether a HWT jointly created by a union and multiple employers can provide benefits to non-union employees. 2. Whether a HWT can administer plans that provide benefit coverage to individuals other than employees. 3. Whether a HWT can administer a plan that provides certain employee assistance benefits (e.g., drug and alcohol rehabilitation services)?
Position: Question of fact.
Reasons: See response.
January 22, 2019
Re: Multi-employer health and welfare trusts
We are writing in response to your correspondence of April 29, 2016, in which you asked whether a health and welfare trust (“HWT”) which is jointly established by a union and multiple employers, may provide benefit coverage to non-unionized employees of participating employers, retired employees, and individuals who are not employees (i.e., dependants or survivors of current or retired employees (“non-employees”)). You have also asked whether a HWT may administer a plan for retired employees that is not funded by any participating employers, or a plan that provides drug or alcohol rehabilitation services as part of an employee assistance program (“EAP”). We apologize for the delay in our response.
This technical interpretation provides general comments about the provisions of the Income Tax Act (“Act”) and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R8, Advance Income Tax Rulings and Technical Interpretations.
Benefit coverage under a plan or policy administered by a HWT
As discussed in paragraph 1.1 of Income Tax Folio S2-F1-C1, Health and Welfare Trusts (“Folio S2-F1-C1”), a HWT is “a trust arrangement established by an employer for the purpose of providing health and welfare benefits to its employees.” A HWT may only administer a group sickness or accident insurance plan (“GSAIP”), a private health services plan (“PHSP”), a group term life insurance policy (“GTLIP”), or a combination thereof.
While the term employee is not specifically defined for purposes of Folio S2-F1-C1, there is no condition in Folio S2-F1-C1 which requires that all employees be in the same employee group. Accordingly, it is our view that the provision of benefit coverage to non-unionized employees, in and of itself, would not disqualify the trust as a HWT.
Further it is our view that the provision of benefit coverage to retired employees or non-employees would not disqualify a trust as a HWT where the underlying plan or policy (i.e., a GSAIP, PHSP, or GTLIP) allows for the provision of benefit coverage to such individuals. That is, an individual’s eligibility for benefit coverage is determined by the underlying plan or policy, rather than under any rule or guideline specific to HWTs. For example, paragraph 1.6 of Folio S2-F1-C1 clarifies that:
A group term life insurance policy is defined in subsection 248(1) as a group life insurance policy under which the only amounts payable by the insurer are:
a. amounts payable on the death or disability of individuals whose lives are insured in respect of, in the course of, or because of their office or employment or former office or employment; and
b. policy dividends or experience rating refunds.
Accordingly, a GTLIP may only provide benefit coverage to current and former (including retired) employees. This would be the case irrespective of whether the GTLIP is administered by a HWT or otherwise.
Funding of plans and policies administered by a HWT
Paragraph 1.20 of Folio S2-F1-C1 states that an employer must have a legal obligation to make contributions to a HWT (to fund employee benefits), and clarifies that a trust funded only with contributions made by employees or an employee union would not qualify as a HWT. However, as noted in paragraph 1.34 of Folio S2-F1-C1 “[I]n some cases, employees may be legally obligated to pay the entire cost of a group sickness or accident insurance plan (insured or self-insured) that is administered by a health and welfare trust.” This is allowed because there is no explicit requirement that an employer be legally obligated to make contributions in respect of each plan or policy administered by a HWT. That being said, each plan or policy administered must be a GSAIP, PHSP, or GTLIP.
Accordingly, where is it established that retired employees may be provided benefit coverage through a GSAIP, PHSP, or GTLIP, and none of the participating employers have a legal obligation to pay any premiums or contributions in respect of the particular plan or policy, it would appear permissible for a HWT to administer such a plan or policy provided that the trust also administers other employer-funded plans or policies.
Whether a HWT may administer a plan that provides drug and alcohol rehabilitation services as part of an EAP?
A HWT may administer a plan that offers drug and alcohol rehabilitation services, provided the plan qualifies as a PHSP. However, it is a question of fact whether such a plan would qualify as a PHSP.
Under the CRA’s revised position on PHSPs, a plan that otherwise meets all of the conditions in paragraph 3 of Interpretation Bulletin IT-339R2, Meaning of private health services plan [1988 and subsequent taxation years], is considered a PHSP as long as all of the expenses covered under the plan are medical or hospital expenses (“medical expenses”) or expenses incurred in connection with and within a reasonable time period following a medical expense, and all or substantially all (generally 90% or more) of the premiums paid under the plan relate to the coverage of medical expenses that are eligible for the medical expense tax credit (“METC”). See Income Tax Folio S1-F1-C1, Medical Expense Tax Credit, for additional information about the METC.
We trust these comments will be helpful.
Nerill Thomas-Wilkinson, CPA, CA
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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