Principal Issues: What is the CRA's current position with respect to revising IT-85R2? If the CRA is revising, what is the timeline? Can the CRA confirm the treatment of a trust created after 2009 that meets the conditions outlined in IT-85R2, but does not meet all of the requirements of the ELHT legislation?
Position: General comments provided.
Reasons: See response.
Question 4 - Health and Welfare Trusts
At the CRA Update session held at the CTF Prairie Province Tax Conference in June 2010 and at the 2010 STEP Conference, the CRA was asked whether it was the CRA's intention to withdraw Interpretation Bulletin IT-85R2, Health and Welfare Trusts for Employees ("IT-85R2") if the Employee Life and Health Trust ("ELHT") proposed legislation passed. The CRA noted that the proposed ELHT legislation only applies to trusts created after 2009. As a result, it indicated there is still a need for the administrative guidance provided by IT-85R2 for trusts created prior to 2009. The CRA also indicated that it has no immediate plans to withdraw IT-85R2, and it would only take this step after taxpayer consultation.
Question:
What is the CRA's current position with respect to revising IT-85R2? If the CRA is revising, can you provide a timeline? Now that the ELHT legislation has been enacted, can you confirm the treatment of a trust created after 2009 that meets the conditions outlined in IT-85R2, but does not meet all the ELHT requirements?
CRA Response:
The CRA can confirm that there is no immediate plan to withdraw the administrative regime authorizing health and welfare trusts ("HWTs") as set out in IT-85R2, dated July 31, 1986. The administrative position outlined in IT-85R2 will continue to apply to trusts established both prior to, and after, 2009 where the conditions outlined in the bulletin are satisfied. Trusts established after 2009 that satisfy the specific conditions outlined in section 144.1 of the Act will be subject to the applicable ELHT legislation.
For greater certainty, a trust established after 2009 to provide benefits to employees from a group sickness or accident insurance plan, a group term life insurance policy or a private health services plan, may be a HWT or an ELHT, where the requirements under the respective regimes are satisfied. However, the trust should maintain evidence to support its intention as to which regime is intended to apply.
Notwithstanding the above, the CRA has identified a number of tax issues involving the use of HWTs that we believe need to be addressed in light of the maintenance of the administrative regime. An initial attempt to revise the bulletin was made in 2005 with the release of a draft version of IT-85R3, however, as a result of the issues raised during the public consultation process, we believed that it was necessary to set it aside. We plan to revisit the earlier draft in view of the issues raised but are unable to provide a timeframe for a revised bulletin at this time.
Renée Sigouin
June 2011
2011-039837