C. Tremblay (613) 957-2139
July 7, 1987
Dear Sirs:
Re: Taxability of Rehabilitation Expenses
This is in reply to your letter of December 1, 1986, regarding the taxability of benefits received under a long term disability plan. We regret the unavoidable delay in replying.
You mentioned two different matters of concern; you requested our view in situations under a long term disability plan where a claimant is examined by an outside examiner to determine whether he can benefit from a program that can place him in a better position to return to his former employment or a different type of gainful employment. You feel that these expenses should not be taxed, as the claimants, although insured on an otherwise taxable wage loss replacement plan, are not actually receiving any tangible items from the payments of the rehabilitation expenses. You also asked whether specific rehabilitation expenses such as specially equipped cars, computers, tuition fees, and books paid by the insurance carrier would be considered taxable benefits to the claimants. You were of the opinion that these expenses should be considered taxable or non-taxable in accordance with the taxability of the wage loss plans involved.
We would prefer to base our opinion of the tax consequences involved on a review of the actual plan document and/or insurance contract. It is a question of fact whether a wage loss replacement plan providing such benefits would be considered one of the types of plans mentioned in subparagraph 6(l)(f)(iii) of the Income Tax Act. If such benefits are substantially and specifically provided for under the plan or contract, the arrangement may be viewed as an employee benefit plan rather than a wage loss replacement plan. Specific taxable benefits to the claimants would be determined based on such factors as to whether a portion of the premium was required to cover these benefits or whether these benefits are in lieu of, or in addition to, these periodic benefits.
We regret that our reply could not be more definitive but trust our comments will be of some assistance.
Yours truly,
for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch