| 19(1) | File No. 5-8285 |
| J.D. Jones | |
| (613) 957-2104 |
August 9th, 1989
Dear Sirs:
Re: Taxation of Long Term Disability Benefits
This is in reply to your letter of June 20, 1989 wherein you requested our opinion on whether payments by an employer of certain expenses under a Long Term Disability Plan would cause the benefits payable to employees under the plan to become taxable where the payments to employees were paid for by employee contributions. Specifically, where the employer paid any portion of the administrative expenses, claim handling charges, legal expenses, actuarial fees or any other charges required in the establishment, operation or wind-up of a Group Long Term Disability Plan, would the benefits received out of such a plan be taxable in the hands of the employees where the premiums otherwise required to fund the plan are paid by the employees.
In our view, as explained in paragraph 16 of Interpretation Bulletin IT-428, Wage Loss Replacement Plans, an employee-pay-all plan is a plan the entire premium cost of which is paid by the employees. It is a question of fact whether or not an employee-pay- all plan exists and the onus is generally on the employer to prove the existence of such a plan. As we see it , the contributions by the employer toward administrative expenses, claim handling charges, legal expenses, actuarial fees or any other charges required in the establishment, operation or wind up of a Group Long Term Disability Plan out of his own funds would take a plan out of the category of an employee-pay-all plan. The result would be that benefits paid out of the plan would be taxable under paragraph 6(1)(f) of the Income Tax Act to the extent that the benefits exceed the employee's own contributions to the plan (subject to the details and exceptions explained in IT-428).
We trust our comments will be of assistance.
Yours truly,
for DirectorSmall Business and General DivisionSpecialty Rulings DirectorateLegislative and IntergovernmentalAffairs Branch