XXXX
P.D. Fuoco (613) 957-2141
April 9, 1987
Dear: XXXX
Re: XXXX
This is in reply to your letter of May 6, 1986 in which you request clarification of our letter of April 9, 1986 responding to your earlier inquiry (file 7-0068) concerning certain tax implications for the above-noted trust fund. We regret the unavoidable delay in responding.
First, you question our determination that the trust is not an extension of the union and that it would not qualify for exemption from tax under paragraph 149(1)(k) of the Income Tax Act (the "Act"). Our opinion in this regard derives from the fact that the trust is a legally-distinct and separately-constituted entity carrying on activities and existing for purposes which are substantially different from those undertaken by the union as a whole.
Second, you disagree with our conclusion that the employer shares in the cost of the premiums for the additional life insurance purchased with the proceeds of the rebate paid out by insurer as a result of its experience rating of the original XXXX coverage of each employee. We would maintain our position that, in view of the employer's contribution of 50% of the original premiums, the use of part of the XXXX refund to purchase additional insurance coverage should be regarded as a payment by the employer of 50% of the cost of the additional coverage. We do not read article XXXX of the copy of the collective agreement submitted between the XXXX local unions and the employer as giving ownership to the Union (or the employees) of the employer's portion of the premium. As we see it, the collective agreement simply provides that any reductions in premiums shall be used to provide other benefits to the employees.
Third, you have asked us to indicate what type of inter-vivos trust this fund would be. It would appear to be an ordinary inter-vivos trust and, depending on the actual benefit programs adopted by it, the trust could satisfy the criteria established for a "Health and Welfare Trust for Employees" which are set out in Interpretation Bulletin 1T-85R2, a copy of which is enclosed for your convenience.
Fourth, with reference to your question concerning reporting requirements, we would advise you that it would not be necessary to complete a copy of Form T3 Supplementary in respect of each employee who benefits from the additional insurance coverage (the cost of which is deducted from the trust's income by the trustees). Strictly speaking, this would be a benefit pursuant to subsection 104(13),of the Act, but in the interests of administrative simplicity, these benefits may be reported by the trustees on a copy of form T4A in respect of each employee who benefits from the group life insurance coverage in excess of $25,000 - see paragraph 12 of IT-85R2 .
With respect to your question concerning the benefit derived by individuals on the purchase of the additional life insurance, we have referred the matter to our Charlottetown District Taxation Office who will consider whether any assessing action will be necessary. Should you require further information you can contact that office directly at:
90 Richmond Street Charlottetown, P.E.I. CIA 8L3 Telephone number - 566-7200
We hope that this letter will be of assistance to you.
Yours truly,
For Director Small Business and General Division Specialty Rulings Directorate Legislative and intergovernmental Affairs Branch