22 February 1989 Income Tax Severed Letter 5-7175 -  

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.

A. Humenuk (613)957-2135

FEB 22 1989

Dear Sirs:

Re: Disability Benefits

We are responding to your letter of November 29, 1988 and subsequent conversation of December 12, 1988, (Humenuk XXXX) concerning the withholding and reporting requirements for taxable disability benefits paid under an insurance contract.

You are specifically concerned with the benefits arising from an association group contract in which eligibility for coverage is dependent on being a member of the association rather than on being an employee. Where an individual is eligible for coverage and elects to be covered, the individual is responsible for the premiums. However, it has come to your attention that certain individuals covered by the policy are being reimbursed by their respective employers, and you would like to know whether you should be withholding tax and reporting the benefits on an information return.

As explained in the attached Interpretation Bulletin IT-428 "Wage Loss Replacement Plans" benefits from a sickness, accident, disability or income maintenance plan to which the employer has made a contribution are taxable under paragraph 6(1)(f) of the Income Tax Act (the "Act") if the benefits are received on a periodic basis as compensation for loss of income from office or employment with certain exceptions.

It is our view that the term "employer's contribution to the plan" implies a contractual obligation on the part of the employer to the insurer to pay all or part of the premiums required. If there is no such obligation, or legal requirement to the same effect, it is our view that the employer has not made a contribution to a plan as contemplated by paragraph 6(1)(f) of the Act, even if the employer has a separate agreement with the employee to reimburse him for costs incurred to obtain the insurance coverage provided.

This type of reimbursement would be included in income under subsection 5(1) or 6(1)(a) of the Act and the employer would add the reimbursement to the employee's T4 information slip annually.

In a situation where benefits are subject to paragraph 6(1)(f) of the Act because the employer is contractually obligated to make the contribution, it is the responsibility of the person who has paid the benefit pursuant to the plan to prepare and file the T4-T4A Information Return as required under Regulation 200(2)(f) of the Act. As explained in paragraph 23 of the bulletin noted above, there is no requirement to withhold tax from the amounts paid.

Should you have questions concerning a factual situation relating to a particular taxpayer, we suggest you provide the local District Taxation Office with as much detail as possible so that they may be in a position to provide you with their views.

Yours truly,

ORIGINAL SIGNED BY ORIGINAL SIGNÉ PAR

P.D.FUOCO

for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch

Enclosure