16 May 1996 Internal T.I. 9608576 - CPP CONT FROM ASO DISABILITY PLAN IN A H&W TRUST

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:

taxation, insurability and pensionability of payments out of an ASO disability plan held in a health and welfare trust

Position:

referred to CPP\UI Eligibility as the taxation of benefits under 6(1)(f) is not really at issue

Reasons:

  			                                 May 16, 1996

	CPP/UI Eligibility Division	Headquarters
	Pierre Paquette	               A. Humenuk
	Acting Manager			                957-8953
	Attention: L. MacKay
		                                 960857

XXXXXXXXXX
Long Term Disability Plan of XXXXXXXXXX

We are replying to your memorandum of February 28, 1996 in which you asked us to write to XXXXXXXXXX concerning the income tax treatment of payments made to employees out of their long-term disability plan and the related contributions to the plan made by the employer.

Since the primary issue raised by XXXXXXXXXX is the withholding requirements with respect to Canada Pension Plan contributions to which you will reply, we are responding directly to you rather than to XXXXXXXXXX.

Periodic benefits payable to an employee under the terms of a disability insurance plan are included in the employee's income to the extent provided by paragraph 6(1)(f) of the Act. The employer's contribution to such a plan will generally not give rise to a taxable benefit in the hands of the employee by reason of paragraph 6(1)(a) of the Act. This general position is not affected by whether or not the plan is provided under the umbrella of a health and welfare trust or a flexible benefit plan or by whether the plan is insured by the employer, an insurance company or through an administrative services only contract.

Based on the documentation you sent to us, we understand that:

XXXXXXXXXX offers its non-bargaining employees a long-term disability insurance plan (the "Plan") as part of its flexible benefit plan and offers its employees who are members of the bargaining group, participation in the same plan through the relevant collective agreement.

The terms of the Plan are set out in two documents, one of which applies to the non-bargaining employees and one of which applies to the employees who are members of the bargaining group. From the terms of the Plan, it is clear that the Plan is a plan of insurance to provide periodic benefits in respect of the loss of employment income incurred as a result of a disability.

The Plan is administered through a health and welfare trust which, in turn, uses an administrative services contract with an insurance company to provide the benefits required under the terms of the Plan.

Under the terms of the health and welfare trust, XXXXXXXXXX is required to contribute amounts sufficient to adequately fund the health and welfare trust. It is also our understanding that the employees are not required to pay anything in respect of the Plan.

It is our view that the benefits paid to employees under the terms of the Plan are included in the employee's income under paragraph 6(1)(f) of the Act and that no amount is required to be included in any of the employees' income in respect of the employer's contribution to the health and welfare trust.

With respect to the reporting requirements for benefits out of a health and welfare trust, we refer you to page 6-17 of the 1993-1997 Employer's Guide to Payroll Deductions - Basic Information, which states that health and welfare benefits and the taxable portion of benefits received out of a wage loss replacement plan are to be included in box 28 of the T4A supplementary slip. We asked Brian Latourell of the Trust Accounts Division for the authority for this position and he referred us to paragraph 13 of Interpretation Bulletin IT-85R2 "Health and Welfare Trusts for Employees."

XXXXXXXXXX

John F. Oulton
Section Chief
Business, Property & Personal Section
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch