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.
December 16, 1993
Re: Taxable/Non-Taxable Group Disability Plans
This is in reply to your letter of July 14, 1993 in which you requested our comments on whether a long term disability plan qualifies as a plan under which the employees covered by the plan make all the contributions. We apologize for the delay in replying.
At the outset, we wish to point out that whether or not a long term disability plan can be regarded as being an employee-pay-all plan discussed in paragraphs 16 to 21 of Interpretation Bulletin IT-428 "Wage Loss Replacement Plans" involves a question of fact that can only be determined following a review of all the relevant facts and documentation. While it is not possible to comment on your particular situation, we have proceeded to provide some general comments on the matter as set out below.
Our reference below to a long term disability (LTD) plan is a plan that qualifies as a "group sickness or accident insurance plan" for the purposes of subparagraph 6(1)(a)(i) of the Income Tax Act (the Act). In addition, our reference to an employee-pay-all plan is an LTD plan the entire premium cost of which is paid by employees (See paragraph 16 of Interpretation Bulletin IT-428).
In the type of situation with which you are concerned, a number of different types of benefits are provided to employees. 50% of the total cost of the benefits is deducted from the salary or wages of the employees. The amount withheld along with the remaining cost of the benefits is remitted by the employer to the plan carrier(s). One of the benefits involves an LTD plan which is intended to be an employee-pay-all plan. However, in the case of some employees, the amount deducted from their salary and wages is not sufficient to cover the premium with respect to the LTD plan.
The issue is whether the LTD plan can be regarded as being an employee-pay-all plan.
On the basis of the information set out above, it is unfortunately not possible to provide comments which are definitive in nature. However, we hope that the comments set out below will assist you in resolving your problem:
(a)(i) The issue of whether or not an employee-pay-all plan exists is not determined by considering who paid the related premiums. Rather, the question of whether an employee-pay-all plan exists depends upon whether the plan itself places upon the employees the legal obligation to pay 100% of the premiums. Such a determination can only be made by looking at the actual wording of a particular plan. Of prime consideration will be whether the plan, either as a term of the policy with the carrier, the employment contract, or some other document, places upon the employees the legal obligation to pay 100% of the premiums. Where such an obligation exists, the plan will generally be regarded as being an employee-pay-all plan assuming the arrangement was in place at all relevant times. (However, we also note that in such a situation, the employer, consistent with the terms of the plan, can normally be regarded as paying the shortfall on behalf of any employee where the amount deducted from his or her salary is insufficient to cover the related premium.). Of course, where the employer can be regarded as having paid a part of an employee's LTD premium that the employee is legally obligated to pay, that part must be treated in the manner of salary or wages received by the employee;
(b)In contrast to the above comments, the relevant documentation may indicate that the employer is legally obligated to pay 50% of the cost of the LTD plan and the employees are legally obligated to pay the other 50%. In such circumstances, it is our view that an employee-pay-all plan does not exist. In addition, it is our view that an LTD plan that does not place an obligation upon the employees to pay 100% of the related premiums cannot be treated as an employee-pay-all plan either by reallocating amounts deducted from the employee's salary with respect to another type of benefit that the employee is obligated to pay or by adding to the employee's income (on an annual basis or otherwise) premiums which the employer was obligated to pay; and
Should you wish to obtain the Department's position on your particular situation, you should submit the relevant facts and documentation to your local District Taxation Office.
We hope that our comments will be of assistance to you.
Business and General Division
Legislative and Intergovernmental
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 1993
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 1993