G. Ozols (613) 957-2127
NOV 10 1988
Dear Sirs:
Re: Wage Loss Replacement Plan
This is in reply to your letter of August 24, 1988 concerning a change in the way in which premiums for a wage loss replacement plan are remitted to the carrier of the plan.
You state that prior to January 1, 1988, the employer deducted the premium amount each month from the employees' salaries and paid these over to the carrier. The plan accordingly qualified as an employee pay all plan.
Commencing January 1, 1988, the employer is paying the premiums on behalf of the employees and will be reporting the amount as a taxable benefit on the employees' T4 slips at year's end. You state that the premium amount constitutes part of the employees' benefits which in turn constitute part of the employees' wage increase on January 1, 1988. It is your contention that this new arrangement does not affect the plan's status as an employee pay all plan.
It is a question of fact, based on all the relevant particulars in each individual case, whether or not an employee pay all plan exists.
We do not have a copy of the policy with the carrier or the employment contract instituting the new premium remittance arrangement. It is not clear whether the new arrangement resulted from an amendment to the policy or from the new employment contract. Without a review of these documents, we cannot say whether the new arrangement jeopardizes the plan's employee pay all status. However, we are prepared to provide you with the general comments which follow.
As noted in your letter, paragraph 17 of Interpretation Bulletin IT-428 provides that where an employee pay all plan exists and it provides for the employer to pay the employees' premiums to the plan carrier and to account for them in the manner of wages or salary, the result is as though the premiums had been withheld from the employees' wages or salary. A plan will maintain its status as an employee pay all plan if the plan provides for such an arrangement at the time payment is made. On the other hand, it is not sufficient for the employer to add at year end to employees' income its contributions to a plan, which contributions would normally be considered non-taxable benefits because of subparagraph 6(1)(a)(i) of the Income Tax Act (the "Act").
However, the manner in which the payments are remitted to the carrier of the plan does not by itself answer the question of whether or not an employee pay all plan exists. Such a determination can only be made by looking at the actual wording of a particular plan. Of prime consideration will be whether the plan, either as a term of the policy with the carrier, the employment contract, or some other document, places upon the employees the legal obligation to pay 100 per cent of the premiums (although the employer may still be responsible for remitting the premiums). As an alternative, we would look to see whether the plan recognized that the premiums were part of the employees' total remuneration from employment package and were treated as such. If these questions can be answered in the affirmative, then the plan will be an employee pay all plan.
We trust the above is of assistance to you.
Yours truly,
ORIGINAL SIGNED BY P.D. Fuoco for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch