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: Will contributions made by members of a union to a benefit plan established by the union (in accordance with a collective agreement) which are paid into a trust created to receive the contributions and administer the plan be considered property received from the union or the members of the union for purposes of subparagraph 75(2)(a)(i)? Will the income earned on those contributions held in the trust be attributable to the union?
Position TAKEN: The income earned by the trust on the contributions received will not attribute to the union under subparagraph 75(2)(a)(i).
Reasons FOR POSITION TAKEN: Based on the wording of the trust indenture, the contributions (on which income is earned by the trust) represent property received from the members of the union and not from the union itself.
950818
XXXXXXXXXX C.R. Bowen
Attention: XXXXXXXXXX
June 23, 1995
Dear Sirs:
We are writing in reply to a memorandum dated March 16, 1995 from XXXXXXXXXX Tax Services, wherein that office requested that we give further consideration to the factual situation outlined in your letter dated December 13, 1994. Your letter was initially sent to our office and we indicated to you in a telephone conversation (Murphy\XXXXXXXXXX) on January 9, 1995 that since your request pertained to arrangements already in existence, it would be forwarded to XXXXXXXXXX Tax Services. That office then advised you in a letter dated March 16, 1995 that your client's situation had been discussed with an individual in Rulings Directorate who concluded that the provisions of subsection 75(2) of the Income Tax Act (the "Act") would not operate to attribute income of the trust to the union. We wish to clarify that this issue was not discussed with a person from Rulings Directorate, but instead with an individual who works in another area of our headquarters.
Summary of Agreements
A) Collective Agreement
A collective agreement (the "Collective Agreement") (a copy of which was not provided) was made between a bargaining agent for a group of employers (the "Employers"), a union (the "Union") and the union members (the "Employees"). The Collective Agreement contains the terms with respect to a plan (the "Plan") to provide long term disability, life and accidental death and dismemberment benefits for the Employees. The terms of the benefits contained in the Plan and the amount of the premiums (the "Premiums") have been established by the Union. All the Premiums required to fund the Plan are paid by the Employees. The Employers are required to deduct the Premiums from the Employees' pay cheques and send them to the Union in the form of a cheque payable to the Union "Insurance Fund". However, in practice, the Employers send the Premium cheques directly to the trustees of the trust described below.
B) Trust Agreement
The Union and the trustees (the "Trustees") of a trust (the "Trust") have entered into a trust agreement (the "Trust Agreement") (a copy of which was provided) which reflects the terms established in the Collective Agreement in respect of the Plan. The salient features of the Trust Agreement are as follows:
A summary of the definitions are:
"Contributions" mean payments made or to be made on behalf of a Member or by a Member in accordance with the terms of any Collective Agreements (referred to as Premiums in the Collective Agreement and hereinafter referred to as Contributions). "Employer" means any person required to make Contributions to the Fund on behalf of a Member pursuant to a Collective Agreement. The "Fund" means the Contributions which comprise the Fund, received from or held for or on behalf of, the Members. A "Member" means any person to whom a Collective Agreement applies and for whom the Employer is obligated to deduct and remit Contributions to the Fund (referred to as an Employee in the Collective Agreement and hereinafter referred to as a Member). The "Plans" mean the Long Term Disability Plan and the Group Life Insurance scheme outlined in a schedule attached to the Trust Agreement (referred to as the Plan in the Collective Agreement and hereinafter referred to as the Plans).
It was in the interest of the Union and its Members to promote the provision of health and welfare benefits for its Members by the establishment of various benefit plans. The Trustees and the Union are desirous of establishing a trust fund and a trust plan to receive Contributions and provide benefits for and on behalf of its Members. The Trustees and the Union desire to provide for the administration of the Plans by the Trustees who have agreed to receive the Contributions in trust upon the terms and conditions in the Trust Agreement.
The Trust Agreement establishes the "Fund", which shall be used for the purpose of providing health and welfare benefits as authorized under the terms of the Trust Agreement and for financing the expenses of the Trustees and the operation and the administration of the Fund.
Neither the Union, nor any Employer or any other person shall have any right, title or interest to the assets of the Fund except as provided in the Trust Agreement.
All monies received by the Trustees as part of the Fund will be deposited in a bank account opened and operated in the name of the Trustees of the Fund.
A Trustee may be removed at any time by the Union, must meet eligibility requirements established by the Union and is chosen by the Union.
Contributions to the Fund made or owing by any Employer shall be deemed to be wages and trust funds due to the Members. The Trustees may take any action necessary to enforce payment of Contributions. The Union and Trustees shall be obligated to pursue all Contributions due and owing to Members under a Collective Agreement and the Trust Agreement.
The Trustees have the power to, among other things, establish and administer the Fund on behalf of the Members, authorize and make payments from the Fund, enter into contracts and agreements for carrying out the terms of the Trust Agreement and for administration of the Fund, invest the principal and interest of the Fund, borrow money, pay for expenses of collecting the Contributions and administering the Fund and the Plans, and deal with the surplus upon termination of the Plans in a manner consistent with the Trustees Act. The Trustees may appoint an administrator who will deal with the administration of the Plans, although the administrator remains accountable to the Trustees. The Trustees may with the consent of the Union modify a) the Trust Agreement and b) the Plans.
The Trust Agreement and Fund may be terminated by the Trustees when the Contributions to the Fund have been discontinued or there are no Collective Agreements.
In the event of termination or wind-up of the Trust, the Trustees shall dispose of the residue of the Fund by distribution of the residue to the Members in an equitable manner or by payment to the Union.
C) Administrative Services Agreement
Although the Trust Agreement clearly contemplates that the Trust is responsible for the administration of the Plans as well as for the bank account of the Fund, we note that the Administrative Services Agreement (a copy of which was provided) for providing long term disability benefits is between the Union and an insurance company and the terms of that agreement completely ignore the existence of the Trust. Since the reason for this arrangement was not provided, we have assumed for the purposes of our comments that the Trust Agreement governs the legal relationships created between the Union, the Members and the Trust.
Issues Raised
1.Is the Trust's income attributable to the Union under subparagraph 75(2)(a)(i) of the Act?
2.If so, is that amount exempt from income tax pursuant to paragraph 149(1)(k) of the Act since the Union is a labour organization?
Your Opinion
You stated in your letter that under the Collective Agreement, the Union assumed the legal obligation to establish various benefit plans for the Members and to receive the Contributions from the Members required to fund the Plans. The Union's liability in this regard is not limited to the funds received. In order to discharge its obligations, the Union settled the Trust by transferring its legal right to receive the Contributions to the Trustees. However, the Union is still the owner of the Contributions and it can deal with the Contributions as it sees fit. Therefore, the Trust's property was directly received from the Union. In addition, it is your opinion that the Trust's property was not indirectly received by the Trust from the Members since the Union is not an entity controlled by the Members nor is the Union acting as an agent or trustee of the Contributions received by it on behalf of the Members. Since the Trust Agreement provides that the Trust's property may revert to the Union upon termination of the Trust, it is your opinion that subparagraph 75(2)(a)(i) of the Act should apply to attribute the Trust's income to the Union.
As per the Trust Agreement, the Trust was established by the Union and the Trustees for the purpose of receiving the Contributions to the Plans, administrating the Plans and providing benefits for and on behalf of its Members under the Plans. That agreement specifically provides that the Contributions to the Trust are made i) by the Members or ii) by an Employer on behalf of the Members. In addition, that agreement states that the Union has no right or title to the Contributions held in the Trust and the Contributions can only be used in accordance with the terms of the Trust Agreement.
It is the Contributions received and invested by the Trust that will earn income. Based on the wording in the Trust Agreement, it is our opinion that those Contributions are not received by the Trust either directly or indirectly from the Union, but are received from the Members either i) directly or ii) from an Employer on behalf of the Members. Therefore, subparagraph 75(2)(a)(i) of the Act will not attribute any income earned on those Contributions to the Union. In view of this response, we have not answered your second question.
This opinion is not an advance income tax ruling. It is provided in accordance with paragraph 21 of the Information Circular 70-6R2 dated September 28, 1990.
Yours truly,
for Director
Manufacturing Industries, Partnerships
and Trusts Division
Rulings Directorate
Policy and Legislation Branch
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, 1995
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, 1995
Email this Content