18 January 1996 Internal T.I. 9530626 - MULTI-EMPLOYER WAGE LOSS PLAN NOT CONSIDERED 2 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.

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 6(1)(f) would apply to all employees covered by a multi-employer plan where one employer out of many makes no contributions to the plan

Position:

6(1)(f) would not apply

Reasons:

while 6(1)(f) only applies where the employee's employer has made a contribution, we have previously expressed the view that a single plan cannot be regarded as more than one plan in order that part of the plan be considered an employee-pay-all plan: however in a multi-employer situation, there may be many near-identical plans administered by a single plan administrator. The existence of more than one plan can further be supported by the fact that the terms for contributions are different - the terms of the plan for which the employer does not contribute is that the employees must contribute whereas the terms of the other plans administered by the plan administer is that the employer will contribute the required premium. Thus the taxability of the benefit depends on whether the employer or a party related to the employer has contributed to the plan under which the benefit is paid.

January 18, 1996
Headquarters Headquarters
Trust Accounts Division A. Humenuk
Andre Bissonnette 957-8953
Director
Attention: Barb Larocque
953062

XXXXXXXXXX

We are replying to your memorandum of November 22, 1995 concerning the wage loss replacement plan for the employees of the above noted municipality. We apologize for the delay in our response.

XXXXXXXXXX

It is your understanding that while most municipalities participating in these plans contribute all or part of the premium required in respect of their employees, the municipality of XXXXXXXXXX does not. This raises the question of whether paragraph 6(1)(f) of the Act would apply to benefits received by the employees of XXXXXXXXXX under the terms of the multi-employer XXXXXXXXXX plan.

As stated on page 2 of our letter of March 7, 1995, the tax consequences relating to a particular plan can only be determined upon a review of all the relevant documentation pertaining to the plan including any collective agreement or other documentation regarding the rights and obligations of the employees in the municipality. In particular, one must first determine what constitutes the plan and who is obligated to pay the premiums under the plan.

Our response of March 7th was based on the assumption that the XXXXXXXXXX plan was a single plan. While the documentation submitted to us by XXXXXXXXXX last January would tend to suggest there is a single plan, we did not review any additional documentation (collective agreements, employment contracts) that may exist at the municipal level. If there is, in fact, a single plan we cannot regard it to be more than one plan in order to enable part of it to be dealt with as an employee-pay-all plan.

However, the fact that there is a single insurance policy or a single plan administrator does not rule out the existence of separate plans. In particular, the fact that the municipalities are free to set their own rules concerning participation in the plan and the manner in which premium cost is to be shared would suggest that each municipality might have its own plan. On the other hand, the fact that all elected or appointed officials of a municipality must be included in the plan if any officials of that municipality are to be covered would suggest that the elected and appointed officials are covered under one plan administered by XXXXXXXXXX.

To provide further clarification on the distinction between one group plan and several plans administered by one plan administrator, consider the distinction between a salary increase equal to the contribution required of the employee and a contribution by the employer. There is no provision in the Act under which an employer, with or without the concurrence of the employee, can add the value of the employer's contribution to a group sickness and accident insurance plan to the employee's income since such contribution is excluded from the employee's income by reason of paragraph 6(1)(a) of the Act. However, where an employer increases an employee's salary by the amount required to be contributed by that employee in respect of an employee-pay-all wage loss replacement plan, the employee is correctly required to include the full amount of salary in income and the employer is required to make the appropriate source deductions in respect of the full amount of the salary.

Thus it is the imposition of the legal obligation on the employees which distinguishes an employee-pay-all plan from one to which the employer contributes as discussed in the case of Dagenais et al. v The Queen (95 DTC 5318) and it is the plan which determines who bears that legal liability. If there is a single plan and the employers are required to make the contributions under the terms of the plan, then employees would be required to include any periodic payments received out of the plan in income to the extent provided by paragraph 6(1)(f) of the Act even if they had accepted a lower amount of salary in exchange for such benefits as postulated by the appellants in the above noted case.

If it can be established that the employers who are members of XXXXXXXXXX each have a separate plan for their employees, the terms of which are identical or near-identical to the terms of the plans of every other employer-member of XXXXXXXXXX then the tax consequences of each plan would be determined separately. The fact that a group of plans are based upon a single insurance policy or administered by one plan administrator has no effect upon the application of paragraph 6(1)(f) of the Act to a benefit received by any specific employee out of a separate plan. The taxability of the benefit would then depend only upon whether or not the employee's employer contributed to the plan under which the benefit was paid.

It seems to us that there should be no significant administrative problems created for an employer who implements a wage loss plan which is sponsored by an association of employers. In these circumstances there would likely be at least as many plans as there are employers but there would be a common administrator and a single insurance contract. This arrangement, however, is not the same, nor does it have the same tax consequences, as a single plan for all the employer-members of an association under which some employers make contributions and others do not.

B.W. Dath
Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch