| 24(1) | 5-902706 |
| F. Francis | |
| (613) 957-3496 | |
| 19(1) |
November 13, 1990
Dear Sirs:
Re: 24(1) Employee Benefit Trust
This is in reply to your letter of July 16, 1990, to the Registrations Division wherein you requested a determination of the tax consequences of a proposed transfer of surplus funds from a Health and Welfare Trust ("HW Trust") to a group RRSP for the employees.
Pursuant to a telephone conversation on November 6, 1990 19(1)Francis) you advised us 24(1)
As noted in Information Circular 70-6R2 we do not express opinions in respect of proposed transactions other than as a reply to an advance income tax ruling request. We will, however, provide the following general comments.
We direct your attention to Interpretation Bulletin 85R2 which provides the characteristics of a Health and Welfare trust. In particular, paragraph 6 therein states that in order to qualify for treatment as a HW Trust, the funds cannot revert to the employer or be used for any purpose other than providing health and welfare benefits for which the contributions are made. In addition, employee contributions must not exceed the amounts required to provide these benefits.
It is our view that employer contributions to a HW Trust that are in excess of amounts required to provide health and welfare benefits would result in a taxable benefit to the employees under paragraph 6(1)(a) of the Income Tax Act (the "Act"). Furthermore, any transfer of funds from the Trust to the employees, either directly or indirectly through RRSPs, may taint the status of the HW Trust. As a consequence thereof, the trust would not be excluded from the definition of "employee benefit plan", "salary deferral arrangement", or "retirement compensation arrangement" under subsection 248(1) of the Act. It should be noted that a determination of the tax status of the trust can only be made after a detailed examination of all relevant documents.
The above comments are an expression of opinion only and are not binding on the Department. We trust, however, that they will be of assistance to you.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate