31 March 1998 Internal T.I. 9733366 - MULTI-EMPLOYER DISABILITY 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:

multi-employer disability plan with clause permitting each employer to choose how contributions will be split between employer and employee

Position:

6(1)(f) is not applicable to employees whose employer makes no contribution at all and is not obligated to do so - this is to be distinguished from a plan which requires employer contributions and the employer makes separate arrangements to have the employee make all the contributions. In that case, the contribution is still considered to be that of the employer with the result that the employee is not taxed on the amount by which salary was reduced in order to compensate for the employer's contibution to the plan and any benefits out of the plan are taxable to the employee

Reasons:

question of fact

	                               	March 31, 1998
Trust Accounts Division,   	HEADQUARTERS
Guy Proulx. Director                  	A. Humenuk
Attention: Barb Larocque
	                               	973336

Multi-Employer Wage Loss Replacement Plans

We have enclosed a copy of correspondence between the XXXXXXXXXX (the Board) and ourselves concerning a disability insurance plan administered by the Board on behalf of the municipalities in XXXXXXXXXX.

As discussed with you on January 23, 1998 (Larocque\Humenuk), the issue raised by the Board is similiar to the issue raised by the XXXXXXXXXX in correspondence dated January 26, 1995 to XXXXXXXXXX Tax Services Office concerning their disability plan(XXXXXXXXXX). However, our review of the XXXXXXXXXX plan indicates one notable difference between the plans. In the case of the XXXXXXXXXX Plan, the documentation permits each employer to choose the manner in which contributions are shared between employer and employees whereas in the case of the XXXXXXXXXX Plan, it is our recollection that the XXXXXXXXXX Plan imposes the obligation for premiums on the employer.

The issue of whether there is a single multi-employer plan or separate plans for each municipality may be relevant for the purpose of determining whether or not the employer is legally obligated to contribute to the plan. Where the employer is legally obligated to contribute to a plan, it is not permissible to disguise the employer's contribution as an employee contribution by adding the value of the premium to the employees' taxable employment income. In such circumstances benefits paid out of the plan are taxable in accordance with paragraph 6(1)(f) of the Act. However, where it can be established that a particular employer has not contributed to a particular multi-employer disability plan and is not obligated to do so, the benefits paid to the employees of such an employer would not be subject to paragraph 6(1)(f) of the Act, even if other participating employers in the group do contribute to the plan.

P. Spice
Section Chief
Business, Property and Employment Section III
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch