3 September 1998 External T.I. 9819435 - WAGE LOSS REPLACEMENT 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: Is proposed plan a wage loss replacement plan

Position: general comments only - question of fact

Reasons: question of fact

XXXXXXXXXX 									981943
C. Tremblay
Attention: XXXXXXXXXX 

September 3, 1998

Dear Sir:

Re: Wage Loss Replacement Plan

This is in reply to your letter of July 20, 1998, to the Winnipeg Tax Services Office, requesting an opinion on a feature of a wage loss replacement plan, that was forwarded to us for reply.

You describe a situation where an employer is in the process of establishing a wage loss replacement plan which will provide long-term and short-term disability coverage. The monthly premiums paid to the insurance company include extended medical coverage, dental coverage and life insurance as well as the disability coverage. The monthly premiums for all employees are paid by the employer, and 50% thereof is deducted from that employee’s pay. The recovery received from each employee is treated as relating only to the short and long-term disability, and life insurance coverage. At the end of the year, any shortfall in the amount of full reimbursement of the disability premiums paid by the employees is treated as a taxable benefit on the employees’ T-4 slips. You ask whether, under these circumstances, Revenue Canada will allow the benefits paid to employees under the wage loss replacement plan to be treated as non-taxable on the basis that it is an employee-pay-all plan.

Our Comments

In determining whether the plan proposed is an employee-pay-all plan, reference should be made to paragraphs 16 to 31 of Interpretation Bulletin IT-428, Wage Loss Replacement Plans. A definitive determination, however, can only be made by looking at the actual wording of a particular plan. Under the term of the policy with the carrier, the employment contract or other documentation, the employees must have the legal obligation to pay 100% of the premium (although the employer may still be responsible for remitting the premiums). If it is determined that such a plan does exist, the employer remits the premiums to the plan carrier and recovers the funds from the employees from their salaries for a portion of the premium associated with the life insurance, long and short-term disability portions, and accounts for the balance as salary or wages, this will not preclude the plan from qualifying as an employee-pay-all-plan, provided such an arrangement is made at the time the plan is put in place .

We caution that the above comments are general only and do not constitute an advance income tax ruling. These comments might differ upon a review of all of the facts, and particularly after an examination of all pertinent documentation

We trust our comments will be of assistance to you

Yours truly,

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