Human Resources Legislative Update
New CRA Technical Direction Published for Health and Welfare Trusts
Date: August 20, 2015
The Canada Revenue Agency (“CRA”) has posted an updated technical direction regarding Health and Welfare Trusts. Effective July 27, 2015, Income Tax Folio S2-F1-C1: Health and Welfare Trusts replaces and cancels CRA’s prior administrative position, as outlined in Interpretation Bulletin IT–85R2, Health and Welfare Trusts for Employees. The new Technical Direction incorporates a number of clarifications and updates, including the following:
- clarification that benefits administered by a health and welfare trust are not always limited to those provided under a third party insurance contract;
- clarification that the funds of a health and welfare trust cannot be invested in or used by the employer or a person or group that is determined not to deal at arm’s length with the employer;
- clarification that the distribution of surplus funds to employees is not an acceptable use of trust funds in most cases and may disqualify the trust as a health and welfare trust;
- acceptable uses of trust funds on the wind-up of a health and welfare trust;
- factors considered when determining trustee independence;
- updated information with respect to deductibility of contributions, including a reference to both insured plans and self-insured plans, and relevant jurisprudence;
- a new overview of employee life and health trusts, clarification that a trust may qualify as both a health and welfare trust and an employee life and health trust in certain circumstances, and the prescribed criteria and conditions required to qualify under each respective trust regime; and
- clarification of the tax treatment of employer contributions to a group sickness or accident insurance plan that provides lump sum payments or pays benefits where there has been no loss of employment income, which reflect paragraph 6(1)(e.1) of the Income Tax Act and apply to contributions made on or after March 29, 2012.
Comments on the new Technical Direction may be submitted by October 27, 2015.