28 April 1993 External T.I. 9305475 F - Wage Loss 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.

XXXXXXXXXX

Attention:  XXXXXXXXXX

Dear Sirs:

RE:  Wage Loss Replacement Plans

We are writing in reply to your letter of February 15, 1993, wherein you requested a technical interpretation of the comments in IT- 428 concerning employee pay-all wage loss replacement plans to the following set of hypothetical facts, with specific reference to, paragraphs 16 through 21 of IT-428. We also refer to our telephone conversation of April 13, 1993 (XXXXXXXXXX/Larochelle).

i)     A corporation pays premiums on behalf of employees under the terms of a group plan, that is a disability insurance plan.

ii)     The terms of the plan provide for the employer to pay the premiums and to account for them as a taxable benefit.

Based on the above facts you have asked us to comment specifically on the following:

1.     Would any benefits under the plan be considered to be taxable under the paragraph 6(1))f) of the Income Tax Act.

2.     Would the answer in 1. be any different if the terms of the plan provided that the amount of the premiums be accounted for as additional salary or wages, the result of which is as though the premiums have been withheld from wages.

Our Comments:

Before responding to your specific questions, we offer the following general comments on the subject of "Employee Pay- All Plans" as discussed under that heading in IT-428.

Whether or not a particular disability plan is an "employee pay-all" plan would involve a finding of fact that can only be determined after reviewing the terms of the plan and any related documents. The prime factor in determining whether or not an employee pay-all plan exists is dependant upon the existence of a requirement, either in the policy of insurance or an employee's contract of employment, that places upon the employee the legal obligation to pay (100%) one-hundred percent of the required premiums. The manner in which payments are deducted, remitted to the carrier and accounted for by the employer does not, in and by itself, determine whether or not the plan is an "employee pay-all "llan.

If, in fact, an employee pay-all plan does exist and it provides for the employer to pay the employee's premiums to the plan as you have described and to account for them as additional wages or salary, the result is as though the premiums had been withheld from the employee's wages or salary. Under such circumstances the plan will be considered an employee pay-all plan provided such an arrangement was in place at the time the payment was made. It is also our view that an employee pay-all plan exists where the employer adds the premium cost to the employee's taxable earnings each pay period as a taxable benefit and withholds tax thereon.

We would emphasize in respect of the latter comment that an employer cannot change the tax status of a plan by simply adding to the employee's income the employer's contribution to such a plan that would normally be considered to be non-taxable benefits.

Since your queries appear to relate to actual taxpayers and factual situations, you may wish to submit all relevant facts and documentation to the appropriate District Taxation Office in your area for their consideration.

We trust our comments will be of assistance to you.

Yours truly,

P.D. Fuoco for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch