28 May 1990 Ministerial Correspondence 5-9654 F - Taxability of Income Replacement Plans

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.

May 28, 1990

Dear Sirs:

Re: Taxability of Income Replacement Plans

This is in reply to your letter of February 19, 1990, wherein you requested a technical interpretation with respect to the above-noted subject in the following situation.

24(1)

You have asked for our opinion if, in the above situation, the proposed arrangement would maintain the non-taxability of benefits to your employees.

In our view, as explained in paragraph 16 of Interpretation Bulletin IT-428, Wage Loss Replacement Plans, an employee-pay-all plan is a plan the entire premium cost of which is paid by the employees. It is a question of fact whether or not an employee-pay-all plan exists and the onus is generally on the employer to prove the existence of such a plan. As we see it the contribution by the employer toward administrative expenses or any other charges required in the establishment, operation or wind up of a Group Long Term Disability Plan, even when done through a separate plan established for this purpose (i.e. cross subsidization), out of his own funds would take a plan out of the category of an employee-pay-all plan. The result would be that benefits paid out of the plan would be taxable under paragraph 6(1)(f) of the Income Tax Act to the extent that the benefits exceed the employee's own contributions to the plan (subject to the details and exceptions explained in IT-428). Accordingly, it is our view that the arrangement proposed by your company as outlined above would not be considered to be an employee-pay-all plan and would, therefore, not maintain its non-taxable status with respect to any benefits paid out of the plan to your company's employees.

We trust our comments are of assistance to you.

Yours truly,

for DirectorBusiness and General DivisionSpecialty Rulings DirectorateLegislative and Intergovernmental Affairs Branch