3 July 1991 Ministerial Letter 911218 F - Health and Welfare 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.

Dear Sirs:

Re:  Health & Welfare Trust   24(1)

This is in reply to your letter dated   24(1)   wherein you requested our comments as to the acceptability of the trust agreement as a Health & Welfare Trust.

The following are our general comments and areas of concerns with respect to the Health & Welfare Trust agreement.

1.     As mentioned in paragraph 6 of Interpretation Bulletin IT-85R2, the trustee or trustees must act independently of the employer. Therefore, the criteria that will be used by the "Agent" to ensure that the trustees selected will be independent from the employer should be outlined in the trust document.

2.     24(1) To comply with the requirement in  paragraph 6 of IT-85R2, that the funds of the trust cannot revert to the employer or be used for any other purpose other than providing health and welfare benefits for which the contributions are made, the Department has taken the position that none of the trust property may be used by the employer or a person related to the employer.  In this respect, the trust agreement must contain a clause restricting the type of investments it can make.  The following wording could be incorporated in the trust document:

     No property of the trust, whether such property is acquired from the capital or income of the trust, shall be invested in the shares, notes, bonds, debentures or similar indebtedness issued by

(a)       the company,

(b)       a person who does not deal at arm's length with the company, or

(c)       a person who is a member of a group of persons not dealing at arm's length with the company,

     nor shall any such property of the trust be invested in property which is or will be used directly or indirectly, solely or otherwise, by the company or any person who does not deal at arm's length with the company or who is a member of a group of persons not dealing at arm's length with the company.  For the purposes of this agreement, a group of persons is deemed not to be dealing at arm's length with the company if the persons in the group are related (within the meaning of the Income Tax Act) and collectively, they control the company.

3.     We should mention that the Department generally considers that coverage for an employee/shareholder under insurance plans, such as a private health services plan, a group term life insurance plan and a group sickness and accident insurance plan, would be received by virtue of the individual's shareholdings rather than by virtue of employment.  Consequently, the benefit in question could be taxed in the shareholder's hands pursuant to subsection 15(1) of the Act and the exceptions under subparagraph 6(1)(a)(i) of the Act would not apply.  Were subsection 15(1) of the Act applies to tax the shareholder because the benefit was received by him in his capacity as a shareholder and not as an employee, the payment of the premiums in question by the corporation would not be deductible in computing the corporation's income since the payment is not incurred by the corporation for the purpose of gaining or producing income from a business or property as required under the exception in paragraph 18(1)(a) of the Act.

4.     With respect to the termination aspect of the Health and Welfare Trust agreement, 24(1)  would not be acceptable.  Normally, Health and Welfare Trust agreements have a clause which specifies that upon termination of the trust, any excess funds, after all liabilities have been settled, go to a designated charitable organization.

If you require further information please contact your local District Taxation Office for their comments.

We trust our comments will be of assistance to you.

Yours truly,

for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch