23 July 1996 External T.I. 9621615 - XXXXXXXXXX - Group insurance arrangements

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.

									962161
XXXXXXXXXX							J.A. Szeszycki
(613) 957-2135

Attention: XXXXXXXXXX

July 23, 1996

Dear Sirs:

Re: XXXXXXXXXX
Group Insurance Arrangements

This is in reply to your letter of June 13, 1996, in which you requested clarification with respect to comments made in our previous response to you dated April 17, 1996 (our file #961391). You make specific reference to our comments under number 1 of the segment entitled "Disability Plans" dealing with the exclusion from the employees' income of employer contributions under a wage loss replacement plan. You have asked us to reconcile our response with comments found in paragraph 17 of interpretation bulletin IT-428, under the heading "Employee Pay-All Plans."

An employee pay-all plan is one in which, under the terms of the contract of employment or the plan itself, the legal obligation to the pay the premium cost rests with the employee. The employee normally meets that obligation by entering into an arrangement with the employer to have the required amounts payable withheld from his periodic paycheque (in the same manner as withholdings on account of income tax and employee contributions to Canada Pension Plan, etc.) The employer then forwards the total employee contributions for the period to the insurer. The employee is not entitled to a deduction from income in respect of the withheld amounts. As a result, the plan is completely funded by employee after-tax dollars and any future benefits received under the plan would not attract income tax.

On the other hand, if the employer undertakes to fund the cost (or any portion thereof) of the plan from its own revenues, the plan is not considered an employee pay-all plan. The employment benefit that is associated with this employer funding of the plan, however, is not required to be included in the employee's income, by virtue of subparagraph 6(1)(a)(i) of the Income Tax Act. As we indicated in our previous correspondence, if the employer is paying the premium in satisfaction of its own contractual obligation to do so, it is precluded from including that cost on the annual T4 of the employee as a taxable benefit.

Paragraph 17 of the bulletin explains that where a true employee pay-all plan exists the remittance by the employer of the employee premium contributions is simply an administrative arrangement whereby the employer withholds the amounts from the after-tax salaries of participating employees.

We hope the above comments clarify the point for you.

Yours truly,

John F. Oulton
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch