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.
Principal Issues:
whether a particular trust document satisfies the requirements for a Health and Welfare trust
Position TAKEN:
general comments only provided, role of agent discussed
Reasons FOR POSITION TAKEN:
as it is not the dept's practice to comment on proposed transactions involving specific taxpayers other than in the form of an ATR, general comments only are provided
941915
XXXXXXXXXX Sandra Short
Attention: XXXXXXXXXX
November 22, 1994
Dear Sirs:
Re: Health & Welfare Trust: XXXXXXXXXX
This is in reply to your letter of July 13, 1994 which requested that we review the revised Health and Welfare Trust agreement for XXXXXXXXXX. It is our understanding that you wish us to review the agreement for compliance purposes and to advise accordingly. We apologize for the delay in responding.
As discussed in paragraph 15 of Interpretation Bulletin IT-85R2, there is no formal registration procedure for a health and welfare trust and no requirement that a trust agreement be submitted to the Department for approval prior to the implementation of the plan. We caution that our comments do not represent an advance income tax ruling as discussed in Information Circular 70-6R2 and the Special Release thereto. As explained in the above-noted Information Circular, it is not the Department's practice to comment on proposed transactions involving specific taxpayers other than in the form of an advance income tax ruling. Clients seriously contemplating a proposed transaction are best advised to seek a formal ruling, submitting a complete statement of facts and issues as well as copies of all relevant documents. However, the following general comments may be of assistance to you.
XXXXXXXXXX
As you may be aware, contributions to the trust by the employer cannot be made on a voluntary or gratuitous basis; however, we would also mention that where employer contributions exceed reasonable funding requirements for employee benefits, employers are not entitled to deduct their contributions to the trust in computing income nor is the trust's designation as a health and welfare trust maintained. Further, as stated in paragraph 6 of interpretation bulletin IT-85R2, employer control over the use of funds of a trust (with or without an external trustee) would occur where the beneficiaries of the trust have no claim against the trustees or the fund except by or through the employer. You may wish to ensure that the wording of XXXXXXXXXX clearly meets this requirement.
XXXXXXXXXX of the agreement indicates that the trust is only to provide benefits under a private health services plan ("PHSP") as defined in subsection 248(1) of the Act. In this regard, we refer you to the comments found in Interpretation Bulletin IT-339R2. "Cost plus" plans as discussed in XXXXXXXXXX of the trust agreement and as discussed in paragraph 6 of Interpretation Bulletin IT-339R2 are acceptable for these purposes.
Our comments regarding employee/shareholder coverage under such insurance plans and as discussed in paragraph 3 of our letter to you dated July 3, 1991 continue to apply.
The role of "AGENT" is discussed in the trust document as the party to establish the trust (XXXXXXXXXX), as an appointee of employers (XXXXXXXXXX), as advisor to trustees (XXXXXXXXXX) and the party to appoint and remove trustees (XXXXXXXXXX); the trustees are given the authority to act and exercise all of their powers through agents including the AGENT, trust records are to be open to inspection and audit by the AGENT and the AGENT has authority to execute, amend or terminate the declaration of trust. The identity of the AGENT is not clear to us. Given the degree of authority and control exercised by the AGENT, the AGENT's identity and relationship to the parties of the trust agreement should be made known. It is difficult to determine whether the independence of the trust is compromised by the AGENT or whether the employer or employers indirectly have control over the funds of the trust by way of the AGENT.
We trust our comments will be of assistance to you.
Yours truly,
P.D. Fuoco
for Director
Business and General Division
Rulings Directorate
Policy and Legislation Branch
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