| 19(1) | File No. 5-7999 |
| A. Humenuk | |
| (613) 957-2135 |
July 12, 1989
19(1)
Re: Wage Loss Replacement Plan
We are responding to your letter of April 26, 1989, concerning the definition of a group sickness or accident insurance plan. You have asked for confirmation that for the purpose of paragraphs 6(1)(a) and 6(1)(f) of the Income Tax Act (the "Act"), a group sickness or accident insurance plan is defined as either
(i) a plan under which a number of employees are insured a single contract between the insurer and the employer contracting with the insurer; or
(ii) a plan formed by the contracting of the employer with the insurer for the issuance of individual accident and sickness insurance policies for at least two employees where these individual policies are pursuant to a common plan.
You have also asked whether it is, in fact, necessary to have two or more employees covered by the plan, particularly where the employer only has one employee. In the situation where there are two employees covered by the plan and one ceases to be a member of that plan, you ask whether the plan ceases to be a group plan when the second employee to be a member of the group.
It should be noted that while a sickness or accident insurance plan must be a group plan in order that the benefit derived from the employer's contribution to such a plan not be a taxable benefit under paragraph 6(1)(a) of the Act, a plan does not need to be a group plan in order for benefits thereunder to be subject to paragraph 6(1)(f) of the Act.
We agree that a "group sickness or accident insurance plan" means a plan under which a number of employees (more than one) are insured either under a single contract between the insurer and an employer contracting with the insurer or under individual contracts but pursuant to a common plan.
In regard to your second question, it is our view as stated in paragraph 7 of IT-85R2 "Health and Welfare Trusts" that it is not possible to have a group plan when there is only one employee covered under the plan. In the situation you describe where a plan has two employees and one employee subsequently ceases to be covered by the plan at that time and consequently a taxable benefit would be included in the remaining employee's income for any contributions made by the employer to the plan after it ceased to be a group plan.
Yours truly,
for Director Small Business and General DivisionSpecialty Rulings DirectorateLegislative and IntergovernmentalAffairs Branch