8 November 1993 Internal T.I. 9327107 F - Deduct WLRP Premiums in Computing H&W Trust Income

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.

NORTH YORK DISTRICT OFFICE Personal and General Section 1263-442-3-4 Section

Attention:  J.D. Maidment

Determination of Losses of a Health and Welfare Trust

We are replying to your memorandum of September 9, 1993 concerning your proposed response to XXXXXXXXXX on the above noted issue.

XXXXXXXXXX we would agree that the trust does not have any non-capital losses to be applied to the 1989-1991 taxation years. In each of the taxation years reviewed, the trustee has deducted from income premiums paid in respect of insurance coverage for qualifying employees. Since these premiums cannot be said to be incurred for the purpose of earning income from business or property, such premiums will only be deductible to the extent permitted by paragraph 104(6)(b) of the Act. While it is for this reason that paragraph 12 of IT-85R2 limits the deduction of such expenses to the amount of gross income, it should be noted that the trust will only be entitled to such a deduction if the amount is payable to the beneficiaries and included in their income under either subsection 104(13) or 105(2) of the Act.

Where the premium or benefit is required to be included in the employee's income as employment income, it is our position that the trustee can choose to consider the premium or benefit to be paid out of trust income, thereby entitling the trust to a deduction for such premiums or benefits paid to the extent of the gross income of the trust. This option will not be beneficial overall where the premium or benefit is not otherwise required to be included in the employees' income as employment income since a deduction by the trust for such benefits or premiums would require the inclusion of such amounts in the income of the beneficiaries, the employees. Where the premiums or benefits are not required to be included in the employees' income, the Department permits the trust to consider premiums and benefits paid by the trust to first be considered as paid out of prior year's funds or current year's contributions by the employer to the extent that it is reasonable to do so. Any premiums and benefits which cannot be considered paid out in this manner will only deductible by the trust to the extent that the payment is taxable to the beneficiary under paragraph 104(13) of the Act.

In your response to XXXXXXXXXX you state that it is impossible to ascertain the reasoning for all the changes made to bulletins. In this particular case, the change was made as a result of representations by tax practitioners who wanted clarification as to the circumstances under which premiums and benefits paid by the trust could reduce the trust income. While these practitioners welcomed the changes made to the bulletin, they would have preferred a distinction be made between the expenses described in paragraph 12(a) which can give rise to a non- capital loss and those described in paragraphs 12(b) and (c) which cannot.

XXXXXXXXXX suggests that all the reported losses in question arise as a result of the payment of wage loss insurance premiums in excess of the net investment income earned by the trust in the current year. Consequently, it would appear that the trust does not have any non-capital losses to be applied to the 1989 to 1991 taxation years.

In summary, while a health and welfare trust may realize a non-capital loss where the expenses incurred in earning the investment or other income of the trust exceed the income of the trust, a non-capital loss does not arise as a result of payments made on behalf of the beneficiaries of the trust.

P.D. Fuoco Section Chief Personal and General SectionBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch