30 November 1996 Ruling 9635793 - DEATH BENEFIT PLAN

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:

1)Whether death benefit plan to provide source of funds to employers is an employee benefit plan or otherwise results in tax consequences to employees;
2)whether there is tax on earnings on plan investments;

3)whether "death benefit" as defined in Act can be paid on death of spouse of employee.

Position:

1)No;
2)No;

3)Not if employee is alive; yes if employee is dead.

Reasons:

1)The plan provides no benefits to employees, only to employers;
2)although not able to determine nature of plan (whether custodial, insurance or reversionary trust) because only parties to plan are tax-exempt, earnings are tax-exempt;

3)if employee is alive, amount received on death of spouse is an employment benefit to employee; if employee predeceases spouse, amount received is a "death benefit" and $10,000 exclusion available to extent not used for amount received on death of employee.

XXXXXXXXXX							963579
XXXXXXXXXX

Attention: XXXXXXXXXX

XXXXXXXXXX, 1997

Re: Advance Income Tax Ruling Request
XXXXXXXXXX

This is in reply to your letter of XXXXXXXXXX, concerning the above-noted ruling request and further to our telephone conversations of XXXXXXXXXX.

FACTS

1.XXXXXXXXXX and exempt from Part I tax on its taxable income in accordance with paragraph 149(1)(f) of the Income Tax Act (the "Act").

2.As confirmed in our telephone conversation of XXXXXXXXXX, the Plan and the XXXXXXXXXX pension plan are independent of each other and no Plan benefits as described under 3 below accrue under or are provided for under the XXXXXXXXXX pension plan.

PROPOSED PLAN

3.XXXXXXXXXX will establish the Plan which will be centrally administered, the relevant terms of which are as follows (copies of the Plan documents were enclosed with your request):

(a)The Pension Committee (the "Committee") of XXXXXXXXXX will administer the Plan and will appoint its Director of Pensions as the Administrator.

(bEach Employer must sign an application to participate ("Participating Employer") under the Plan.

(c)Certain employees of the Participating Employers are considered "Eligible Persons", in respect of whose deaths, benefits will be paid to the Participating Employers covered under the Plan; there are several categories of "Eligible Persons" those being

(i)active and disabled employees of a Participating Employer who are covered by the Participating Employer's Basic Group Life Plan (PEBGLP),

(ii)retired employees of a Participating Employer who have an unreduced pension from XXXXXXXXXX pension plan and were covered by the PEBGLP,

(iii)spouses of retired employees covered under (ii),

(iv)spouses of deceased retired employees covered under (ii),

(v)retired employees of a Participating Employer who retired with a reduced pension from XXXXXXXXXX pension plan and were covered by the PEBGLP, and

(vi)spouses of retired employees covered under (v).

(d)Participating Employers make monthly contributions to the Plan in respect of their Eligible Persons at rates determined by the Committee from time to time. It is expected that contribution rates will be based on an appropriate actuarial basis.

(e)All contributions together with investment earnings and capital are held by the Administrator; the Administrator will enter into an agreement with a custodian for the safe-keeping and administration of Plan assets in excess of amounts required to meet Plan expenses; the Administrator will invest Plan assets and may delegate investment decisions to a bank, trust company or investment counsel firm; the Administrator will make payments with respect to (i) benefits, (ii) administrative expenses and operating fees of the Plan, and custodial, legal, actuarial, consulting and investment management fees, and (iii) any taxes payable by the Plan.

(f)Benefits under the Plan are paid to a Participating Employer in respect of an Eligible Person described in (c) above as follows:

XXXXXXXXXX.

(g)Amounts due under the Plan will be paid to the Participating Employer within 30 days of the Administrator receiving satisfactory proof of the Eligible Person's death. However, if the Plan has insufficient funds to cover the amount of the payment when due, the payment will be reduced or delayed in such equitable manner as the Committee considers appropriate.

(h)The Plan assets will be the only source for the payment of benefits. No Eligible Person or Participating Employer is entitled to any recompense or damages from XXXXXXXXXX, the Administrator, or the Committee in respect of the operation of the Plan or on account of the inability of the Plan to provide benefits. The Committee and Administrator are not liable for any liability or debt of the Plan, nor for the non-fulfilment of any contract, nor for any other liability arising in connection with the administration of the Plan and the administration and investment of the Plan assets.

(i)The Committee expects to continue the Plan indefinitely but reserves the right to amend or terminate the Plan at any time, without the approval or consent of the Participating Employers.

(j)If the Plan terminates, none of the assets of the Plan will revert to the Participating Employers until provision has been made for all benefits due before the termination date.

PURPOSE OF PROPOSED PLAN

4.Upon the death of an active, disabled or retired employee or spouse of a deceased retired employee XXXXXXXXXX would like each of its Employers to provide a "death benefit" (as defined under subsection 248(1) of the Act) payable to the beneficiary specified by the employee or to the deceased's estate. XXXXXXXXXX also wishes its Employers to provide a benefit to the specified beneficiary or estate upon the death of a spouse of a retired employee. The Plan is being established in order to ensure that the Employers are able to budget for the cost of these benefits.

ADDITIONAL INFORMATION

5.As confirmed in our telephone conversation of XXXXXXXXXX to the best of your knowledge, none of the issues involved in this ruling request is being considered by a tax services office or tax centre in connection with an income tax return already filed and none of the issues is under objection.

6.The applicable function of XXXXXXXXXX which handles the work of the Committee files its returns at the XXXXXXXXXX Centre Tax Services Office.

RULINGS GIVEN

Provided that the statement of facts and proposed transactions are correct and constitute a complete disclosure of all the relevant facts and proposed transactions, we rule as follows:

A.No tax will be payable on the taxable income, if any, of the Plan, pursuant to paragraph 149(1)(f) of the Act.

B.No amount will be included in the income of an employee under subsection 5(1) or paragraph 6(1)(a) of the Act as a result of a contribution paid to the Plan by a Participating Employer.

C.No amount will be included in the income of an employee under subsection 5(1), or paragraph 6(1)(g), or subparagraphs 56(1)(a)(i) or (iii) of the Act as a result of a benefit being paid under the Plan to a Participating Employer.

D.The amount paid by a Participating Employer to the beneficiary or estate on the death of an Eligible Person as described in paragraphs 3(c)(i), (ii) and (v) above, will constitute a death benefit as defined and to the extent it is recognized as such in subsection 248(1) of the Act and will be included in the recipient's income in the year of receipt under subparagraph 56(1)(a)(iii) of the Act.

E.The amount paid by a Participating Employer to the beneficiary or estate on the death of an Eligible Person as described in paragraph 3(c)(iv) will constitute a death benefit as defined and to the extent it is recognized as such in subsection 248(1) of the Act (and taking into account in the calculation under the definition in subsection 248(1) of the Act any amount previously paid by the Participating Employer on the death of the retired employee described in paragraph 3(c)(ii) of whom the Eligible Person described in 3(c)(iv) was a spouse at the time of the retired employee's death), and will be included in the recipient's income in the year of receipt under subparagraph 56(1)(a)(iii) of the Act.

F.The amount paid by the Participating Employer to the beneficiary or estate on the death of an Eligible Person as described in paragraph 3(c)(iii) and (vi) above, will be included in the income of the employee who was the spouse of the deceased at the time of the death as income from an office or employment in accordance with section 5 by virtue of subsection 56(2) of the Act.

COMMENT

Nothing in this ruling should be taken to confirm or imply the nature of the Plan for purposes of the Act. We have not determined whether the Plan is or is not a trust as described in subsection 75(2) of the Act, an insurance arrangement, or a custodial arrangement of XXXXXXXXXX.

The above advance income tax rulings are given subject to the limitations and qualifications set forth in Information Circular 70-6R3 dated December 30, 1996, issued by Revenue Canada, and are binding on Revenue Canada provided the proposed plan is established by XXXXXXXXXX.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch