to: Ottawa District Office J.J. Lefebvre Chief Audit Review
From: Specialty Rulings Directorate G. Thornley 957-2101
Subject: Members Benefit Trust Fund
This is in reply to your memorandum of May 2, 1989, and further to our telephone conversation (Thornley West of June 1, 1989) concerning the above noted trust fund.
In response to our memorandum of March 15, 1989, wherein we stated that we were unable to comment on the Members Benefit Trust Fund due to lack of information with respect to creation and purpose of the fund, you have forwarded a copy of the original Trust Agreement and copies of the Trust fund's 1988 minutes. You also enclosed a copy of an undated letter sent to members of the Trust Fund outlining benefits effective November 1, 1988. The benefits enumerated in the letter are substantially the same as those set out in Article 1.06 of the Trust Agreement.
As in the case of the 19(1) Members Training Trust Fund (the subject of our March 15, 1989 memorandum) you propose to disallow expenses or costs relating to the collecting and administration of employer contributions to the Members Benefit trust Fund as such contributions are not part of the income of the trust (see paragraph 11 of IT-85R2 ).
The result of disallowing such expenses is to make the interest income earned on surplus funds taxable.
As indicated in our earlier letter, we generally agree with your reasoning, however, unlike the Members Training Trust Fund, the Members Benefits Trust Fund would appear to fall squarely within the special treatment rules outlined in paragraph 12 of IT-85R2 . Thus in our view it would appear that the Trust's accountant is correct in relying on the content of the Bulletin when filing Returns. The only other argument that comes to mind is that of unreasonableness. To the extent any of the expenses claimed are unreasonable in the circumstances you may wish to consider disallowing such expenses based on the provisions of section 67 of the Income Tax Act.
for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch