M. Evans (613) 957-2133 DEC 4 1987
Dear Sirs:
Re: Employee Pay-All Disability Plan
This is in reply to your letter of September 11, 1987, requesting a ruling regarding the above.
Advance income tax rulings are only issued under the guidelines in Information- Circular No. 70-6R dated December 18, 1978, and Special Release thereto dated June 23, 1980, copies of which are enclosed. We are nevertheless prepared to provide general comments on the matter you have raised. Any opinions expressed, however, are not binding on the Department.
You advise that one of your clients has a long term disability plan which covers all employees other than its executives. The employer pays for the cost of the long term disability coverage and, as a result, any benefit payments received by employees are subject to income tax. The employer is considering setting up a separate long term disability plan-for its executives. It is the employer's intent that the plan be designed so that any benefit payments received would be tax free. As such, the executives would be required to pay the premium cost of the long term disability coverage. Rather than giving the executives a gross salary increase so that they may make a net salary premium contribution, you wish to know if the employer could remit the premium on behalf of the executives during the year and then include the amount of each executive's premium as taxable income on their annual T4 forms.
The Department's views on employee-pay-all plans are discussed in paragraphs 16 to 19 in Interpretation Bulletin IT-428 , a copy of which is enclosed. As stated in paragraph 17 of that bulletin, where an employee-pay-all plan provides for the employer to pay the employee's premiums to the plan and to account for them in the manner of wages and salary, as in the case of your client, the result is as though the premiums had been withheld from the employee's wages or salary. That is, the plan maintains its status as an employee-pay-all plan if the plan provided for such an arrangement at the time the payment is made.
With respect to your second question, we advise that if the two plans in question are separate plans, they may be covered by a single insurance policy. We confirm that the Department considers that separate plans exist if the administration of the plans demonstrates the fact that they are separate by separate accounting for claims, premiums and administrative charges. However, separate employer records are not required. There must not be cross-subsidization between the two plans and the level of benefits, the premium rates, the qualifications for membership and other terms and conditions of each of the plans must not be dependent upon the existence of the other plan.
We trust this is the information you require.
Yours truly,
QRIGINAL SIGNED BY ORIGINAL SIGNED PAR ROBERT H. JOYCE
for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch
Encls.