7 December 1991 Income Tax Severed Letter - Disability insurance — application of ITAR-19

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.

XXX

Disability Insurance - Application of ITAR 19

We are writing with respect to your memorandum of December 5, 1991, and the enquiry from Scarborough D.O., wherein our views were requested as to whether or not the benefits the taxpayer will receive in 24(1) (the company) would be taxable in the taxpayer's hands.

Our understanding of the facts in this case is as follows:

XXX

Our Comments

General Comments

In order for benefits payable under a plan to be totally exempt from income tax under ITAR 19, all of the following conditions must be fulfilled:

• • the event that gave rise to the disability payments must have occurred prior to 1974,
• • the plan must have been established prior to June 19, 1971, and
• • the plan must not be a changed plan except to the extent permitted under ITAR 19(2).

In the event that a plan is a change plan, benefits payable under that plan will contain both taxable and non-taxable components. (See paragraph 21 of IT-428).

Specific Comments

From our review of the documentation and explanations set out in the D.O. referral, it is our view that:

• • the event that gave rise to the taxpayer's disability occurred prior to 1974, as discussed in paragraph 3 of IT-428 and as evidenced by the document dated XXX
• • the plan was established prior to June 19, 1971, and,
• • the plan is a changed plan as evidenced by the major revision that became effective on XXX

In view of the foregoing, it is our view that the benefits to be received under the plan, will be partially exempt from income tax under ITAR 19(1) as discussed in IT-54 generally and paragraph 21 of IT-428, specifically. As a result it will be necessary to establish the level of benefits the taxpayer would have entitled to receive under the plan before the first changes made to the plan, subsequent to XXX and that made this plan a new plan.

In this regard, the company should be able to make the required determinations regarding the level of benefits the taxpayer would have been eligible to receive on a tax-free basis, prior to this major revision to the plan.