28 April 1993 Income Tax Severed Letter 9238285 - Whether Benefits Exempt

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

                                                   923828
XXXXXXXXXX                                         M. Eisner
                                                   (613) 957-2138

April 28, 1993

Dear Sir:

Re: Wage Loss Replacement Plan

This is in reply to your letter of December 18, 1993 in which you asked us to consider whether certain long term disability benefits you are receiving are non-taxable as a consequence of the transitional provisions of subsection 19(1) of the Income Tax Application Rules 1971 (ITARS). We apologize for the delay in responding.

                          XXXXXXXXXX

            included a long term disability insurance plan
which provided for the payment of benefits (66 2/3 % of
certain income of the disabled individual at the time of the
disability) in respect of a disability extending beyond 6
months.  The benefits are paid for the duration of the
disability up to the age of 65.

The premiums for this insurance were shared between the employer and the employees. The basic provision of 66.67% of certain income was never changed.

                          XXXXXXXXXX

                     you have asked whether the related
benefits are exempt under subsection 19(1) of the ITARS.

Our Comments

For your general information, we are enclosing a copy of Interpretation Bulletin IT-54 "Wage Loss Replacement Plans" which sets out the Department's general position on such plans in relation to section 19 of the ITARS.

In order for benefits payable under a disability plan to be totally exempt from income tax, the following conditions must be fulfilled:

(a) the event that gave rise to the disability payments must have occurred prior to 1974; and

(b) the plan must have been established prior to June 19, 1971 and must not be a changed plan (except to the extent set out below in our comments made in respect of this condition).

In the case of (a) above, it is the Department's position that the word "event" in the context of section 19 of the ITARS refers to a particular occurrence which adversely affects an employee's health or capacity to work to the degree that loss of employment results at the time of the event or at a later date. Where a disease is involved, it is necessary to identify some occurrence which in chronological terms had the qualities of the onset of the disease. In relation to these comments, a genetic defect, which might be present at one's birth but which does not manifest itself until later years, would not qualify as an event for purposes of section 19 of the ITARS in the absence of a particular occurrence before 1974 which could be identified with the onset of the disabling condition. It is, accordingly, our view that the benefits you are receiving cannot be regarded as satisfying the condition in (a) for the reason you have suggested.

Even though the information you have provided us indicates that the benefits you are receiving are taxable, we are, nonetheless, providing you with the following additional information on the two conditions set out above.

In order for condition (a) to be satisfied, it would be necessary for you to establish that the onset of your disease commenced at some time prior 1974. Information in this regard would include documentation (a report or medical certificate) indicating

(i) the circumstances under which your disease was contracted or acquired; and

(ii) the nature of your disability and that the disease was the cause of your disability which prevented you from carrying out your employment duties. In the case of condition (b), it is not possible to provide you with definitive comments in relation to paragraph 4 of IT-54 which includes comments on changes made to a pre-June 19, 1971 plan. Information in this regard would likely be available from your employer or the insurer. We are also mentioning that if changes to a pre-June 19, 1971 plan have been made subsequent to June 18,1971 and the changes can be regarded as being "exceptions" referred to in the first sentence of paragraph 4 of IT-54 (See paragraphs 8 to 14 of IT-54 ), the benefits received under the plan would be fully exempt assuming condition (a) above has been satisfied. On the other hand, to the extent that changes are considered to fall outside the exceptions, the resulting increase in benefits would be taxable while the remaining benefits would be exempt.

Should you wish to pursue the matter of whether the benefits you are receiving are non-taxable, you should submit the relevant details to the North York District Taxation Office. Should you require further assistance in this regard, you may contact Ms. B. White (tel. (416) 512-4454) at that office.

While we regret that we could not give you a favourable response, we hope that the foregoing 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

cc: North York District Taxation Office