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: Interaction of Health and Welfare Trusts and Employee Life and Health Trusts
STEP CONFERENCE 2010
6. On February 26, 2010, the Department of Finance ("Finance") released new tax proposals to accommodate Employee Life and Health Trusts ("ELHT"). The proposals (which, if passed, will apply for 2010 forward) create a new type of taxable inter vivos trust that will enable funds to be accumulated within the ELHT by employer contributions for the benefit of employees' health benefits. It would appear that these proposals will replace the administrative material in Interpretation Bulletin IT-85R2, "Health and Welfare Trusts for Employees". Can you please confirm the CRA's intent to withdraw IT-85R2 if the ELHT proposed legislation is passed.
The CRA is currently considering the impact of the proposed ELHT legislation on the administrative regime authorizing health and welfare trusts ("HWT") as set out in IT-85R2, dated July 31, 1986.
Over the years, the CRA has identified tax issues involving the use of HWTs, primarily in non-arms' length shareholder/employee situations. Examples include the use of offshore trusts and over-funding of benefits through lump sum payments by employers. Further information is contained in ITTN No. 25. We initially attempted to address these issues in a 2005 draft version of IT-85R3; however, the feedback received indicated the issues were more complex than they initially appeared and the draft was set aside. However, the CRA remains diligent in ensuring that HWTs fully comply with the administrative regime.
Finance has now released draft legislation on ELHTs which will give effect to the CRA's administrative position in IT-85R2 and deal with the tax issues previously identified by the CRA. As you know, Finance invited comments on the proposed legislation, to be submitted by April 30, 2010. These comments will be reviewed and considered and until that process is complete, it remains possible that the proposed legislation will be amended further. Any such amendments may have an impact on the factors relevant to the review of the interaction between the ELHT and the HWT regime. Given that the draft legislation on ELHTs only applies to trusts created after 2009, it appears there is still a need for the administrative guidance set out in the bulletin.
Consequently, at this point we are not in a position to comment definitively on the effect the ELHT legislation may have on HWTs and there are no plans to withdraw IT-85R2.
June 8, 2010
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