T.D. Peters (613) 995-0051 May 16, 1986
Dear Sirs:
This is in reply to your letter of March 13, 1986 requesting our views with respect to proposed changes to your client's Long Term Disability Plan.
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Since we do not have a copy of the master contract, we cannot comment on its status under the Income Tax Act (the "Act"). Assuming, however, that this plan is one envisaged by subparagraph 6(1)(f)(ii) of the Act, in order to change it to an Employee-Pay-All Plan it would be necessary to change the terms of the "division under the master contract" to establish that the entire premium cost is to be paid by the employees. To conform to the insurer's request for written notice of the change of the premium payor might achieve that result. In our view it would be advisable that the way contributions are made to the Plan reflects this change. If the employer simply continued to make the contributions and subsequently charged the employee a like amount, there could be a question as to whether, in fact, there has been a change to the Plan. We agree that if the premiums are to be forwarded to the insurer on a monthly basis by the employer it would be advisable to collect the premiums by way of payroll deduction on a similar basis. There would not be any further procedures necessary to change the tax status of the Plan.
We would further point out that where a participant or any dependent is receiving or is entitled to benefits under the Plan arising out of a claim made in respect of an event that occurred prior to the date of change to an Employee-Pay-All Plan, such benefits will continue to be included in computing the participant's or dependent's income to the extent required under the Act and to the extent such benefits were provided in the Plan.
We trust these comments will be of assistance to you in this matter.
Yours truly,
for Director Financial Industries Division Rulings Directorate Legislative and Intergovernmental Affairs Branch