15 May 1997 External T.I. 9707965 - EMPLOYEE PAY ALL 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 the payment by an employer of external consulting fees in connection with an employee-pay-all plan will taint the status of the plan

Position:

It may if the fees relate to premiums to the plan

Reasons:

In accordance with our IT 428, to qualify as an employee-pay-all plan, the employees must be legally obligated to pay 100% premiums. We have previously taken the position in file 901525, that external consulting fees paid for services rendered in evaluating comparable plans with a view to recommending a particular plan will not taint the status of the plan.

This letter contemplates ongoing fees to outside consulting firms. THis issue has not been addressed before. However, if similar services were provided by the plan administrator and the employer paid the fees, the plan would be disqualified.

XXXXXXXXXX		                                      970796

Attention: XXXXXXXXXX

May 15, 1997

Dear Sirs:

Re: Employee-Pay-All Wage Loss Replacement Plans

This is in reply to your letter of March 18, 1997, wherein you requested our comments with respect to fees or commissions paid by an employer to a consultant and the effect on an employee-pay-all plan as described in our Interpretation Bulletin IT-428.

Whether a particular plan is an "employee-pay-all" plan as that term is described in IT 428 is a determination of fact that would necessitate a review of all the pertinent documentation. The main criteria is the existence of a requirement, either in the policy of insurance or an employee's contract of employment, that places upon the employee the legal obligation to pay 100% of the required premiums. The manner in which the payments are deducted, remitted to the carrier and accounted for by the employer does not, in and by itself, determine whether a particular plan is an employee-pay-all plan.

You have posed numerous questions concerning various situations whereunder the employer pays external consulting fees in connection with an employee-pay-all plan. Generally, where an employer pays external consulting fees in return for services rendered in evaluating comparable plans with a view to recommending the plan or carrier that would meet the client specifications, the status of an employee-pay-all plan would not be affected. However, where the fees are related to the premiums payable to the plan, it may be reasonable to conclude that the plan does not place an obligation upon the employees to pay 100% of the premium. Consequently, the particular plan may not qualify as an employee-pay-all plan and periodic payments received therefrom would be taxable under paragraph 6 (1)(f) of the Income Tax Act.

We trust our comments will be of assistance to you.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate