3 October 2011 External T.I. 2011-0392641E5 - Employee Life and Health Trust

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.

Principal Issues: Can an employer establish an ELHT where all of the employees of the corporation are "key employee".

Position: No

Reasons: Paragraph 144.2(2)(e) requires that at least 75% of the members of a class of beneficiaries must be non-key employees. In addition, 144.1(3) does not allow a trust to deduct designated employee benefits where the ELHT is operated primarily for the benefit of key employees.

XXXXXXXXXX 							2011-039264
								A. Townsend
October 3, 2011

Dear XXXXXXXXXX :

Re : Employee Life and Health Trust (ELHT)

I am writing in response to your letter of December 13, 2010 asking whether a trust qualifies as an ELHT where all of the employees are "key employees", as defined in subsection 144.1(1). In addition you are asking if the employer will be entitled to deduct contributions under subsection 144.1(4) and if the trust will be taxed on the contributions from the employer.

Written confirmation of the tax implications inherent in a particular transaction is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. The particular situation outlined in your letter appears to relate to a factual one, involving a specific taxpayer, therefore, you should submit all relevant facts and documentation to the appropriate Tax Services Office for their views. However, we are prepared to offer the following general comments that may be of assistance.

All statutory references in this letter are references to the provisions of the Income Tax Act, R.S.C. 1985 (5th supp.) c. 1, as amended (the "Act").

An ELHT is an employee benefit trust established by one or more employers that satisfies the conditions described in subsection 144.1(2). One of these conditions requires that at least 75% of the members of a class of beneficiaries of the trust are not "key employees" of a participating employer. Subsection 144.1(4) allows an employer to deduct contributions to an EHLT. Where a trust does not meet the conditions of 144.1(2) in a taxation year, it will not be considered to be an EHLT for that taxation year and the employer will not be allowed the deduction under subsection 144.1(4).

In addition, subsection 144.1(3) disallows the deduction of designated employee benefits by the ELHT under subsection 104(6), where the ELHT is operated primarily for the benefit of key employees or the family members of key employees. Therefore, a trust established to provide employee benefits to only key employees will not benefit from ELHT status.

Finally, benefits that an employee receives or enjoys in respect of, in the course of, or by virtue of an office or employment are generally taxable as income from that office or employment pursuant to paragraph 6(1)(a). Subparagraph 6(1)(a)(i) excludes benefits derived from the contributions of a taxpayer's employer to a ELHT. However, where an employer makes contributions to a plan that does not meet the conditions described in subsection 144.1(2) as a ELHT, or any of the other plans listed in subparagraph 6(1)(a)(i), the contribution will not be excluded and will be considered a taxable benefit to the employee under paragraph 6(1)(a).

I trust the foregoing is of assistance.

Yours truly,

Guy Goulet CA, M.Fisc.
Manager
For Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch