17 July 1989 External T.I. 73965 F - Health and Welfare Trusts

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.

July 17, 1989

Dear Sirs:

24(1)

We are responding to your letter of March 17, 1989, concerning health and welfare trusts.  In our conversation of June 15, 1989, (19(1) (Humenuk), you indicated that the benefits available to an employee under the 24(1) are limited to;

i)     the payment of provincial health care premiums,

ii)      the benefit from a group term life insurance policy,

iii)      dental and extended health care which is provided under a private health services plan, and

iv)      benefits from a self-insured wage loss replacement plan that is a group sickness or accident insurance plan.

24(1)

We do not generally offer opinions on proposed transactions except by way of an advance tax ruling.  The attached Information Circular 70-6R "Advance Income Tax Rulings" outlines the procedure for obtaining a ruling.  Please note that the minimum fee has been replaced with a $325 deposit and the current rate is $65 per hour.  Furthermore, we are unable to discuss the tax implications of a transaction of a specific taxpayer without written authorization from that taxpayer.  We would, however, like to offer you the following general comments concerning the questions you raised.

In the situations you describe, an employee who is a member of Plan A may be temporarily working in the geographic area or trade covered by Plan B.  In this situation, the reciprocal agreement between Plan A and Plan B will operate to ensure that contributions remitted to Plan B by the employer on behalf of the employee, will be forwarded to Plan A and the employee will be given credit in Plan A for these contributions.  It is also our understanding that the employer in question is required to make the contribution to Plan B by virtue of a collective agreement and is not required to make a contribution to Plan A.  Furthermore, we understand that the employee-member of Plan A will not be eligible for benefits under Plan B in respect of those same contributions.  Your questions are set out below and our comments on each follow the relevant question.

1)     You asked whether a reciprocal agreement such as that described above between a plan resident in Canada (Canada Plan) with a plan which is not resident in Canada (non-Resident Plan) would affect the status of the Canada Plan as a health and welfare trust described in paragraph 1 of Interpretation Bulletin IT-85R2 "Health and Welfare Trusts for Employees".

     We would first like to point out that a plan such as that described above (i.e. one which is not restricted to employee coverage under the types of arrangements described in subparagraphs 1(a) to (d) of IT-85R2) will be treated as an employee benefit plan or an employee trust.  However, please refer to the comments in paragraphs 3 and 4 of the bulletin.

     In answer to your question, the effect of a reciprocal agreement on the Canada Plan, whether with a Non-Resident Plan for another Canada Plan will involve a finding of fact.  Not only is it a question of fact as to whether any particular plan is an employee benefit plan or a health and welfare trust described in IT-85R2 but it is also a question of fact as to which benefit the particular employee receives by virtue of his employment.

     An examination of the reciprocal agreements, plan documents, and the collective agreements may indicate that an employee who is a member of a Non-Resident Plan does not receive a benefit form the Canada Plan to which his employer contributes but rather receives his benefits form the Non-Resident Plan by virtue of his employment in Canada for the period in question.  In such a case, the Canada Plan would be acting as agent for the Non-Resident Plan and the status of the Canada Plan as a health and welfare trust would not be affected by the terms of the Non-Resident Plan.

     If the facts indicate that the Canada Plan is not the transfer agent for the contributions by the employer to the Non-resident Plan (or any other plan associated by means of a reciprocal agreement), it is our view that the Canada Plan would only be treated as a health and welfare trust if all the plans with which it has entered into a reciprocal agreement are also health and welfare trusts. If one plan in the group is not a health and welfare trust as described in IT-85R2 (non-qualifying plan), it is our view that the other plans, in the group would have to aggregate the contributions to the non-qualifying plan and account for them in the appropriate manner (i.e. as contributions to an employee benefit plan) in order to maintain their status as health and welfare trusts.

2)     You have also asked whether the contributions to a Canada Plan would be deductible as a business expense to the employer-contributor if the Canada Plan was required to transfer the funds to a Non-resident Plan.  A Canadian employer would not be precluded from a deduction for an otherwise deductible business expense in respect of a contribution to a plan solely because the plan was not resident in Canada.  The deductibility of contributions to an employee benefit plan or employee trust is discussed in the attached Interpretation Bulletin IT-502 "Employee Benefit Plans and Employee Trusts".

3)     You have asked whether the Canada Plan would be required to withhold non-resident tax or prepare an information return in respect of the contributions transferred to the Non-resident Plan.  We are unable to provide a response to this question without a review of the relevant documentation.

4)     You have asked whether the transfer of funds from a Non-resident Plan to a Canada Plan would be considered to confer a taxable benefit on the member of the Canada Plan (in the event the member of the Canada Plan works in the geographic area covered by the Non-resident Plan).  As a Canadian resident is required to report his world income (including any benefits taxable under section 6 of the Act) on his Canadian income tax return, it is our view that no taxable benefit arises solely as a result of the transfer of funds from one Plan to another.  To the extent that the Canada Plan provides benefits which are taxable to the employee (such as the payment of provincial health care premiums), the employee would be considered to receive a taxable benefit.

We trust our comments will be of assistance to you.

Yours truly

for DirectorSmall Business and General DivisionSpecialty Rulings DirectorateLegislative and Intergovernmental Affairs Branch

Enclosures

c.c. Source Deductions Division