Employee Benefit Plan


MNR v. Chrysler Canada Ltd., 92 DTC 6346, [1992] 2 CTC 95 (FCTD)

After finding (below) that the Chrysler employee stock ownership plan was both an employee benefit plan and an agreement to issue shares to employees within the meaning of section 7, Strayer J. found that section 7 had "priority" over paragraph 6(1)(g).

Re MNR and Chrysler Canada Ltd., 91 DTC 5526, [1991] 2 CTC 156 (FCTD)

Chrysler (U.S.) contributed treasury shares to a trust for the benefit of its employees and those of Chrysler Canada. Chrysler Canada reimbursed Chrysler (U.S.) for the shares contributed for the benefit of Chrysler Canada's employees. The trustee allocated the shares notionally to employees, reinvested dividends and further shares which are similarly allocated and at the termination of the plan (which occurred some seven years later) distributed the shares or cash proceeds thereof.

This arrangement was held to entail both the issue of shares as described in ss.7(1) and (2), and an employee benefit plan as described in s. 248(1). After noting that Canadian employees agreed to make wage concessions partly in return for right of participation in the plan, Strayer J. stated (p. 5531):

"I can see no reason why the 'agreement' referred to cannot be an oral agreement or an implied agreement - even an implied agreement based on a collective bargaining arrangement ..."

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 7 - Subsection 7(2) oral agreement 178

See Also

McNeeley v. The Queen, 2020 TCC 90

a substantial distribution from an EBP to the founding shareholder was made to him qua employee, and was taxable

The founding shareholder (Mr Baker) of a software company was one of the three trustees of a trust (the “Trust”) settled by his mother with $210 that acquired shares of the company (“D2L”) for the benefit of the beneficiaries, who were restricted to employees, with the trustees having the unfettered discretion as to the allocation and distribution of such shares among the beneficiaries.

On August 24, 2012, the Trust distributed 3,356,415 B Shares of a successor company to various beneficiaries, including 2,317,109 to Mr. Baker, with such distribution being viewed as coming within the trust distribution rules in inter alia s. 107(2) or (2.001) rather than being viewed as a distribution by an employee benefit plan (“EBP”) trust that was taxable under s. 6(1)(g).

In the course of finding that the Trust was an EBP, Russell J stated (at para. 22) regarding the scope of the parenthetical exclusion in the preamble to the EBP definition, “that the EBP definition provides a carve-out from an EBP that excludes any payment that would have not been taxable were section 6 read without subparagraph 6(1)(a)(ii) and paragraph 6(1)(g).” He also found that the Trust was not a prescribed trust (referenced, for example, in s. 107(2) and defined in Reg. 4800.1), stating (at para. 31):

As paragraph (a) of the subsection 108(1) “trust” definition excludes EBP trusts from any and all references to “trust” in section 107, while at the same time certain provisions of section 107 constitute the statutory basis for prescribed trusts, it would seem no EBP could concurrently be a prescribed trust. In particular, the Trust, being an EBP, cannot as well be a prescribed trust.

Russell J finally rejected Mr Baker’s submission that, having regard to the parenthetical exclusion referred to above, the distributions to him were not taxable under the EBP rules because they were made to him in his capacity of founding shareholder rather than employee (and, thus, would not have been taxable to him under s. 6(1)(a) in the absence of such rules), stating (at paras. 51, 56 and 60):

[T]he evidence before me fails to establish that in unanimously making the 2012 decisions regarding distribution of B Shares to Mr. Baker, none of the three trustees took into consideration … any aspect of Mr. Baker’s work contributions over the twelve immediately preceding years qua D2L’s ranking employee. …

[I]t seems unassailable that simply by being a D2L employee, Mr. Baker … received his benefit of B Shares from the Trust which was expressly established to benefit employees. Thus … he received the benefit “"by virtue of"” that employment. The Trust could not have benefitted him with any of its B Shares had he not been a D2L employee - regardless that also he was the founder of D2L’s business.

… [T]he broad wording of paragraph 6(1)(a) requires only the slightest connection between the benefit and employment. That does not preclude benefits received where, in addition to the required connection between benefit and employment, there also may have been considerations extraneous to employment.

Locations of other summaries Wordcount
Tax Topics - Income Tax Regulations - Regulation 4800.1 prescribed trust and EBP are mutually exclusive 149

Louis-Phillipe Bédard v. Minister of National Revenue, 91 DTC 573, [1991] 1 CTC 2323 (TCC)

One-half of the $32,000 received by the taxpayer from his former employer following his dismissal represented compensation for the defamation which he suffered as a result of his employer publicizing its purported reasons for dismissing him. The damages for defamation were non-taxable.

James R. Crighton v. Minister of National Revenue, 91 DTC 511, [1991] 1 CTC 2318 (TCC)

Upon terminating the taxpayer's employment, his employer offered to pay him the sum of $150,000 "in whatever form you choose which best suits your financial and tax requirements". After negotiation, it was agreed that $52,000 would be contributed to his RRSP, and the balance of $98,000 to an employee benefit plan established for his benefit. Watson D.J.TC held that although the outright acceptance of this offer by the taxpayer may very well have resulted in him being considered to have received a retiring allowance or a s. 56(2) benefit, no such entitlement to a retiring allowance occurred. Instead, the $98,000 was paid to a qualifying employee benefit plan.

Administrative Policy

1 August 2019 Internal T.I. 2018-0781951I7 - Employee benefit plan and recharge agreement

custodial PSP arrangement was an EBP

Parentco (apparently, a non-resident public company) funded and administered a performance share plan (“PSP”) for employees of group companies, including Canco. A vested award may be settled in either shares or the cash equivalent, at the discretion of Canco or Parentco. Parentco periodically contributes cash to a custodian Such funds were used to purchase shares on the open market, with the shares used to settle awards under the PSP as well as other equity-based incentive plans.

Before addressing the deductibility of reimbursement payments made by Canco to Parentco pursuant to a recharge agreement for the value of shares distributed to Canco’s employees in satisfaction of vested PSP awards, the Directorate stated that it agreed with the following submission, on the assumption that the arrangement was a trust:

There is an ‘arrangement’ (the PSP); under which contributions (cash) were made by a ‘person’ (Parentco) ‘with whom the employer’ (Canco) did not deal at arm’s length, to another person [the custodian]; and under which arrangement ‘payments’ (the distribution of shares) would be made for the benefit of employees of the ‘employer’ (Canco).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 7 - Subsection 7(3) - Paragraph 7(3)(b) no s. 7(3)(b) prohibition where at employer’s option to settle PSPs in cash or in shares 250
Tax Topics - Income Tax Act - Section 7 - Subsection 7(1) - Paragraph 7(1)(a) s. 7 rules do not apply to shares purchased through a trust 180
Tax Topics - Income Tax Act - Section 32.1 - Subsection 32.1(1) payments made by Canco to parent for the value of parent shares distributed by parent-funded EBP to Canco employees were not deductible under s. 32.1 269
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) - Income-Producing Purpose recharge payments made for employees participating in parent-administered PSP not deductible to extent they were employed by affiliates during vesting period 241
Tax Topics - Income Tax Act - Section 152 - Subsection 152(4) request for deduction not to be allowed if based on case decision rather than error 281

S2-F1-C1 - Health and Welfare Trusts


1.1 A health and welfare trust is not defined in the Act. In general terms, a health and welfare trust described in this Chapter is a trust arrangement established by an employer for the purpose of providing health and welfare benefits to its employees. Under this type of trust arrangement, trustees (usually with equal representation from the employer and the employees or their union) receive contributions from the employer and in some cases from employees, to provide certain health and welfare benefits agreed to between the employer and the employees. Multiple employers can participate in the same health and welfare trust.

Health and welfare benefits administered

1.2 A health and welfare trust may only administer the following:

  1. a group sickness or accident insurance plan;
  2. a private health services plan;
  3. a group term life insurance policy; or
  4. any combination of the above plans.

1.3 With the exception of a group term life insurance policy, a health and welfare trust can provide health and welfare benefits under plans described in ¶1.2 through third-party insurance contracts (an insured plan), directly from the property of the health and welfare trust (a self-insured plan), or through a combination of both.

Group sickness or accident insurance plan

1.4 The term group sickness or accident insurance plan is not defined in the Act. Generally, a group sickness or accident insurance plan may be described as an arrangement between an employer and employees which provides for the payment of benefits (periodic or lump sum) to an employee who suffers a loss as a result of sickness, maternity, or accident. To qualify as a group plan, a group sickness or accident insurance plan must have at least two employee plan members. Reference to a group sickness or accident insurance plan includes:

  1. a sickness or accident insurance plan;
  2. a disability insurance plan; and
  3. an income maintenance insurance plan. ...


1.14 A health and welfare trust cannot provide benefit coverage to non-employees such as partners of a partnership, shareholders, or independent contractors, even if these individuals pay for the coverage themselves.

Use of trust property

1.15 The funds of the trust and any income earned in the trust cannot revert to the employer or be used for a purpose other than providing health and welfare benefits under plans described in ¶1.2. Trust property may not be invested in, or used by, the employer, a person who does not deal at arm's length with the employer, or a person who is a member of a group of persons not dealing at arm's length with the employer. ...

1.16 The distribution of surplus funds to employees, including a transfer to a pension plan, a group registered retirement savings plan, or to individual employee registered retirement savings plans, is not an acceptable use of trust funds and may disqualify the trust as a health and welfare trust.

1.17 Where a health and welfare trust is wound up, any funds remaining in the trust may be used to provide additional benefits under plans described in ¶1.2 to the beneficiaries of the trust (that is, employees), or may be distributed to the employees or to a registered charity.

Independence from employer

1.18 The trustees must act independently of the employer.

2013 Ruling 2012-0470801R3 - Employee Benefit Plan - Redemption Window

redemption of notional units

RE "amendments is to permit a Participant to elect to redeem a portion of the Participant's Notional Units during a redemption window that may be opened by the Trustee from time to time, without ceasing to be a Participant in the Plan."

23 February 1995 External T.I. 9425085 - FOREIGN PENSION TRANSFERS TO RRSPS

Where there is a transfer of funds from a U.K. pension to a registered pension plan, the transaction will not be a taxable event if (a) the transfer occurs at the time the individual is not resident in Canada, or (b) the terms of the registered pension plan provide for such a transfer and the transfer is not made at the employee's request.

23 January 1992 External T.I. 5-913366 -

Where a change in the trustees of an employee benefit plan was provided for in the terms of a grandfathered plan, a change of the trustees would not by itself result in adverse tax consequences. However, additional considerations would arise if the proposed trustees were not dealing at arm's length with the plan beneficiaries.

21 October 1991 T.I. (Tax Window, No. 11, p. 5, ¶1532)

Where a corporation sells its business at a time when there is a surplus in its health and welfare trust, the funds should remain in the existing trust, rather than being transferred to an established trust of the purchaser or to a new trust established by the purchaser with respect to the purchased operation.

10 June 1991 T.I. (Tax Window, No. 4, p. 28, ¶1293)

An arrangement under which the employer pays an insurer in respect of legal services to be provided to its employees does not constitute an employee benefit plan or an employee trust.

12 January 1990 T.I. (June 1990 Access Letter, ¶1248)

The inclusion of a funeral expense benefit would result in an otherwise non-taxable plan becoming an employee benefit plan or employee trust.


Simon Thompson, "Canada's Income Tax Rules for Non-Registered Plans: Implications for Foreign Pensions", A Journal of International Taxation, Vol. 15, No. 10, October 2004, p. 34.

D. Bruce Ball, Brenda Dietric H., "Canadian Taxation of Foreign Pensions", Personal Tax Planning, 2000 Canadian Tax Journal, Vol. 48, No. 6, p. 1908.

Paragraph (d)

Administrative Policy

2 November 2009 External T.I. 2009-0308741E5 F - Fonds de formation

para. (d) exclusion did not apply where the training related to other work

The collective agreement between the Corporation and the Union provided for the establishment and funding by the Corporation of a training fund for the employees, which financed the training of laid-off workers, e.g., in courses leading to a vocational studies or college diploma, and also provided them with income while in school. In finding that the fund was an employee benefit plan ("EBP"), CRA referred to the exclusion in para. (d), and stated that it did not apply “since the training received by the laid-off workers does not necessarily relate to their skills respecting their duties with the Corporation” and “Rather, it appears that the funded training was intended to enable employees to find work in a field other than that of the Corporation.”