22 September 1992 Income Tax Severed Letter 9222735 - Premiums to H & W Trust not Actuarially Determined

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.

922273
A. Humenuk
(613) 957-2134
24(1)

Attention: 19(1)

Dear Sirs:

Re: Self-Insured Health and Welfare Trusts

This is in response to your letter of July 21, 1992 and our previous correspondence of February 19, 1992 wherein we stated that the contributions to a self-insured health and welfare trust must be actuarially determined in order for the employer to obtain a deduction for the contributions thereto in the current year.

As stated in our previous letter, this comment was based on the premise that the contributions to a self-insured health and welfare trust cannot exceed the amount required to provide the benefits under the plan. It is a question of fact as to whether the contributions to such a plan are reasonable in relation to the amount required to provide the benefits on an annual basis or whether such contributions are made with the intent of creating a surplus or reserve for future benefits.

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Periodic actuarial determinations provide a degree of assurance that the contributions are, in fact, reasonable in relation to the amount required to provide the benefits on an annual basis. While we cannot say with any degree of certainty that all contributions which are set through the collective bargaining process will be reasonable in relation to the fund's expected annual needs, we agree that such contributions would not normally be in excess of the amount required to fund the plan on a current basis.

Accordingly, while there is no express requirement that the contributions to a health and welfare trust be actuarially determined in order to be deductible by the employer on a current basis, we cannot give you any confirmation (by way of an advance income tax ruling or otherwise) that a particular payment would be so deductible unless the contributions for the current period are actuarially determined on a periodic basis. While we may not be able to provide you with the confirmation you desire, the employer's contributions which have been negotiated through the collective bargaining process will be deductible by the employer in the year the contributions were made provided that the contributions are reasonable in relation to the plan's annual requirements.

We trust our comments will be of assistance to you.

Yours truly,
P.D. Fuoco
for Director
Business and General Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch

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