M. Shea-DesRosiers (613)957-8953
December 6, 1988
Dear Sirs:
Re: Retirement Compensation Arrangements/Disability Plans Subsection 248 (1) of the Income Tax Act (the "Act")
This is in reply to your letter of November 17, 1988 concerning the above-mentioned subject.
You describe the following situation:
A number of employers in the XXXX make contributions to a Long-Term Disability Plan (the "plan"), along with contributions by the employees, for the purpose of providing benefits to the employees in cases of long term disability. The plan is administered by trustees who are arm's length persons with regard to the employers and the employees contributing to the plan. The plan is self-insured and contributions made to the plan are invested within the plan. If an employee becomes unable to work due to disability, then the plan will pay benefits to that person. The benefit is a fixed amount per month reduced by various other payments that an individual may receive for such disability, such as a disability pension from the Canada Pension Plan. These benefits will continue to be paid to the employee throughout his life or until he is able to return to work or reaches the age of 65.
The plan in question was previously classified as a Health & Welfare Trust and has been taxed accordingly. Your concern regarding the plan's status as a Retirement Compensation Arrangement ("RCA") under subsection 248(1) of the Act is that contributions are made to another person, i.e. the trustee of the plan, by employers in connection with benefits that are to be received or enjoyed by the employees on a substantial change in the services rendered by the employees (i.e. the employees would no longer be providing services on becoming disabled).
You believe the above plan fits the exemption mentioned in the RCA definition as found in subparagraph 248(1)(g) of the Act concerning a "group sickness or accident insurance plan".
Our comments
We confirm that the reference in paragraph 2 of Interpretation Bulletin IT-85R2 to an "insured plan" includes a self-insured plan.
Since the above plan is already in existence, any interpretation of its tax status should be addressed to the District Office. However we can offer you the following comments:
It is our opinion that contributions to a plan that qualifies for treatment as a health and welfare trust would be considered contributions to a "group sickness or accident insurance plan" and would therefore come under the exceptions listed in the RCA definition.
We trust the above comments will be of assistance to you.
Yours truly,
Wayne Douglas
for Director Financial Industries Division Rulings Directorate