14 July 1999 External T.I. 9913745 - FLEXIBLE BENEFIT 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: An employer provides a flexible benefit program (the “Program”) to its employees which involves a health services plan. The Program’s plan year is the calendar year. We are asked whether, in light of paragraphs 3 and 4 of IT-529, the choice can be made 11 months into the plan year, where the employee’s share of the cost of flex benefits can be allocated out of a bonus which is paid in March following the plan year.

Position: This is not acceptable. The employee would be taxed on the amount of the flex benefits as regular employment income.

Reasons: The position is consistent with paragraph 6 of IT-529.

XXXXXXXXXX 991374
M. Eisner
Attention: XXXXXXXXXX

July 14, 1999

Dear Sir:

Re: Flexible Employee Benefit Program

This is in reply to your letter of May 6, 1999, concerning the above-noted subject.

You have indicated that you have been asked to consider whether there are adverse tax consequences in respect of a certain aspect of a flexible employee benefit program (the “Program”) for employees. With respect to the Program, you asked whether the employee’s share of the cost of flexible benefits can be allocated out of a bonus, which is usually paid in March of the year that follows the plan year (which ends on December 31) where the selection is made in November (being 11 months into the plan year).

Our Comments

In an actual situation involving a flexible employee benefit program that has been established, it is necessary to review all the relevant facts and documentation before a definitive opinion can be provided. As such a review falls within the responsibility of the tax services offices, you may wish to contact the local office in your area in that regard. However, we are providing you with the following general comments.

With respect to your scenario, reference may be made to paragraph 8 of Interpretation Bulletin IT-529 “Flexible Employee Benefit Plans”. This paragraph indicates that if, after the beginning of a plan year, a flexible employee benefit program permits a selection of benefits, the employee will be considered to have constructively received employment income equal to the value of the allocated credits (unless the entire Program could be regarded as being an “employee benefit plan” as defined in subsection 248(1) of the Act). Therefore, in the circumstances outlined above, our general view is that the employee would be required to include the amount of the contributions in his or her income under subsection 5(1) of the Act in the year the allocation to the Program is made.

We trust that our comments will be of assistance to you.

Yours truly,

John Oulton
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

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