JUN 25 1987
SMALL BUSINESS AND GENERAL DIVISION C. Tremblay Your file: HAV 4903-2
RE: XXXX
This is in reply to your memorandum of April 10, 1987 concerning the above-mentioned proposed plan. Our understanding is that Supply and Services Canada is requesting confirmation from you that this proposed plan be taxable pursuant to paragraph 6(l)(f) of the Income Tax Act. Your review of the plan in accordance with Interpretation Bulletin IT-428 , shows that funds are not accumulated in the hands of a trustee, nor is the plan based on principles of insurance, since article 5.06 of the proposed plan indicates that the benefits are to be paid directly from current operating funds. It is your opinion that this plan should be taxed as a continuing wage plan under 6(1)(a) of the Act. The union and Supply and Services Canada have indicated that taxation as a continuing wage plan would not be acceptable.
Our Comments
Interpretation Bulletin IT-428 describes the types of wage loss replacement plans to which paragraph 6(l)(f) applies. It states that provision be made between employer and a group of employees for indemnification for loss of income on a periodic basis based on insurance principles (i.e. funds accumulated in the hands of a trustee or trust account that are calculated to be sufficient to meet anticipated claims) for loss of employment income as a consequence of sickness, maternity or accidents. In our opinion, the subject plan does not meet these requirements and thus we agree with your view that the proposed plan is a continuing wage plan and the benefits thereunder should be taxed as such under paragraph 6(1)(a).
Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch