Principal Issues: Whether the condition in paragraph 144.1(2)(f) applies only to a class of beneficiaries described in subparagraph 144.1(2)(e)(i).
Position: Yes.
Reasons: See below.
CALU Roundtable - May 2022
Question 4 - ELHTs and Key Employee Rules
Background
An employee life and health trust (ELHT) is a trust established by one or more employers to provide “designated employee benefits” as defined in subsection 144.1(1) of the Income Tax Act (the “Act”) to certain employees, former employees and specified related persons described in paragraph (d) of the ELHT qualifying conditions in subsection 144.1(2) of the Act. Certain restrictions apply where the ELHT is established primarily for key employees as defined in subsection 144.1(1) of the Act. In particular, prior to recent amendments to subsection 144.1(2) of the Act, the ELHT had to include one class of beneficiaries where the members of the class represent at least 25% of all the beneficiaries of the participating employers under the trust, and at least 75% of the members of the class are not key employees of any of the participating employers under the trust (the “Beneficiary Condition”).
Recent amendments to paragraph 144.1(2)(e) of the Act permit an alternative condition to the Beneficiary Condition such that a trusteed plan can qualify as an ELHT where key employees are included as beneficiaries under the plan if the total cost of private health services plan benefits (PHSP benefits) provided to each key employee (and specified related persons) in respect of the year does not exceed $2,500 (the “Alternative Condition”).
However, a further requirement, under paragraph 144.1(2)(f) of the Act, for a trusteed plan to qualify as an ELHT is that the rights under the trust of each key employee of a participating employer are not more advantageous than the rights of a class of beneficiaries described in paragraph 144.1(2)(e) of the Act. This provision was not amended with the introduction of the Alternative Condition and it is not clear whether it was intended that paragraph 144.1(2)(f) of the Act continues to be a condition for an ELHT where the Alternative Condition is met.
Question
Can the CRA confirm that while paragraph 144.1(2)(f) of the Act is stated to apply in respect of beneficiaries described in paragraph 144.1(2)(e) of the Act, that it will be interpreted to only apply where the Beneficiary Condition is relied upon for a trust to be an ELHT? In other words, where the Alternative Condition is met by a trust, can the CRA confirm that the plan does not otherwise have to meet the requirements in paragraph 144.1(2)(f) of the Act?
CRA Response
The condition in paragraph 144.1(2)(f) of the Act should only apply where a trust meets the condition in subparagraph 144.1(2)(e)(i) of the Act and does not apply to a trust that meets the condition in subparagraph 144.1(2)(e)(ii) of the Act.
Shiri Trop
2022-092880
May 3, 2022