13 January 1993 Income Tax Severed Letter 9233485 - Group Plans as Wage Loss Replacement 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.

923348
XXXXXXXXXX A. Humenuk
(613) 957-2134

January 13, 1993

Dear XXXXXXXXXX

Re: Wage Loss Replacement Plans

• We are replying to your letter of October 29, 1992 concerning the meaning of the word "group" as it used in Interpretation Bulletin IT-428 "Wage Loss Replacement Plans".
• Where an employer contributes to a group sickness or accident insurance plan, the employee in respect of whom the contribution was made is not required to include the value of that benefit in income. It is your understanding that paragraph 8 of Interpretation Bulletin IT-428 implies that the Department accepts as a group plan any plan which defines the employees covered by "class" (i.e clerical, administrative). You have asked whether a plan which defines its employees by class can be considered a group plan if the plan covers only one employee (for example, where the employer only has one employee). You also ask whether there are any restrictions on what types of "classes" can be used to describe a group plan.
• A group plan means a plan under which a number of employees (two or more) are insured either under a single contract between the insurer and an employer contracting with the insurer or under individual contracts but pursuant to a common plan. Consequently, a plan which covers only one employee will not be considered a group plan.
• Before addressing your concerns about what types of classes can be used to describe the employees covered by a particular group plan, we would like to clarify the intent of paragraph 8 of IT-428. The comments therein were intended to address the situation where an employer has several plans, offered to various classes of employees. While it may be to an employer's advantage to combine the various plans so that they are treated as one plan (i.e. where one of the plans is offered to only one employee), this will only be permitted where the same class of employees are entitled to participate in each of the plans which are to be considered as one and any premium or other cost which is shared by the employer and employees is shared in the same ratio for all members of the plan.
• Where the benefits are granted on an individual basis or on the basis of an employee's shareholdings, the value of the benefits will be included in the individual's income notwithstanding that the benefits would have been excluded if offered on a group basis. The use of the word "classes" in the bulletin is used to acknowledge that an employer may provide different benefits or different levels of benefits to different employees, yet still be offering the benefits on a group basis rather than on an individual basis. The employees comprising such a class should have a common element and all employees of that employer which share that common element should be included in that class.
• However, there is one class of employees to which the comments in the bulletin do not apply; that is the class of employee-shareholders. Where the common distinguishing element of a class is that of being a shareholder or being related to a shareholder, the benefit will be presumed to have been conferred upon that individual by reason of the shareholder's shareholdings rather than the employment of the individual. In such a case, the amount of the premiums or contributions paid by the corporation in the year and attributable to the shareholders are included in income as a shareholder benefit under subsection 15(1) of the Income Tax Act. Paragraph 6(1)(f) of the Act does not apply to any benefits received pursuant to a plan which is solely for shareholders and relatives of shareholders nor is the employer entitled to a deduction in respect of the contributions made to such a plan.

We trust our comments will be of assistance to you.

Yours truly,

P.D. Fuoco
for Director
Business and General Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch