Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues: Whether ASO fees paid by a H&W Trust should be allowed as a deduction against investment income of the trust.
Position: Yes.
Reasons: This position is consistent with the position in paragraph 12(b) of IT-85R2.
February 17, 2000
Winnipeg Tax Services Office HEADQUARTERS Large File Audit J. Gibbons (613) 957-8953 Attention: Gary Yip 2000-000335
XXXXXXXXXX (the "Trust") and XXXXXXXXXX (the "taxpayer")
Further to our memorandum of December 20, 1999, we are writing to inform you that we have completed our review of the deduction by health and welfare trusts for administrative services only ("ASO") fees. As a result of our review, we recommend that the Trust's deduction for ASO fees be accepted.
We reviewed the working papers for IT-85R2, as well as the working papers for the earlier versions of this bulletin, to provide us with a perspective on the development of the position in paragraph 12(b). The working papers in the bulletin file indicate that the development of the position in IT-85R2 was made in consultation with officials in the health and welfare industry.
As you know, a health and welfare trust is not a defined term in the law, but rather it is an administrative concept that benefits employers by allowing them an immediate tax deduction for payments made to the trust even though the payments may not result in an immediate and corresponding taxable benefit to the employees. To ensure consistency, a number of established conditions, which are set out in the bulletin, must be met in order to qualify as a health and welfare trust. One of these conditions is that the employer's contribution to the trust must not exceed the amount required to fund employees' health and welfare benefits. As a result of this condition, the investment income earned by a health and welfare trust should be minimal, and the effect of allowing a deduction for administrative fees small. Further, the Agency takes the position that a non-capital loss cannot arise as a result of expenses described in paragraph 12(b) of IT-85R2, nor, as indicated in our previous memorandum, can funds revert to an employer (paragraph 6).
In view of the foregoing, and after further consideration, we have concluded that the position in paragraph 12(b) should be maintained.
John Oulton
Manager
Business, Property & Employment Income Section
Income Tax Rulings Directorate