12 August 1997 External T.I. 9712355 - HEALTH&WELFARE TRUST-INDEPENDENCE OF TRUSTEES

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 a trust for a disability plan would be disqualified as a Health and Welfare Trust due to: (i) the appointment of the trustees by the employer, and (ii) the fact that all of the trustees are employees of the employer.

Position:

The fact that all of the trustees are appointed by the employer or that all of the trustees are employees of the employer is not, in itself, determinative of the independence of the trustees

Reasons:

Question of fact.

J. Gibbons
XXXXXXXXXX 5-971235

Attention: XXXXXXXXXX

August 12, 1997

Dear Sir:

We are replying to your letter of May 6, 1997, concerning the requirement that trustees under a health and welfare trust act independently from the employer. More specifically, you inquire whether a trust for a disability plan would be disqualified as a health and welfare trust due to: (i) the appointment of the trustees by the employer, and (ii) the fact that all of the trustees are employees of the employer.

Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R3. The following comments are, therefore, of a general nature only.

As indicated in paragraph 6 of Interpretation Bulletin IT-85R2, to qualify as a health and welfare trust, the trust must be one where the trustees act independently of the employer, as opposed to the type of arrangement initiated unilaterally by an employer who has control over the use of the funds. As you correctly state, it is a question of fact as to whether the trustees act independently from the employer, and the fact that all of the trustees are appointed by the employer or that all of the trustees are employees of the employer is not, in itself, determinative of the independence of the trustees. Where the facts indicate that the employer-appointed trustees act independently of the employer by representing both the employer and employees, the fact that the employer has appointed all the trustees will not in and of itself disqualify the trust as a health and welfare trust. In this regard, we refer you to the comments in Interpretation Bulletin IT-419R regarding de facto control, which may be useful in determining whether an employer would be considered to control such a trust.

We trust that these comments will be of assistance.

Yours truly,

C. Chouinard
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch