No: ATR-8
DATE: May 12, 1986
SUBJECT: Self-Insured Health and Welfare Trust Fund
REFERENCE: Self-insured Health and Welfare Trust Fund Paragraphs
6(1)(a), 6(1)(f) and 110(8)(a)
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Self-Insured Health and Welfare Trust Fund
This is an edited version of Income Tax Ruling TR-90 published
August 13, 1979.
Facts and Proposed Transaction:
Our understanding of the facts and the proposed transaction
is as follows:
1. A Co proposes to establish a Health and Welfare Trust
Fund through which the following "Expense Benefit Plans"
for eligible employees and dependants will be provided:
(a) Prosthetic and Durable Medical Equipment
(b) Vision
(c) Dental
(d) Weekly Disability.
2. The benefits will be in the nature of a self-insured arrangement
without the use of an insurance contract with a licensed carrier.
3. The benefits will be paid in accordance with plan descriptions
and governed by a Trust Agreement. The individual trustees
will be responsible for receiving A Co's contributions to
the plan and arranging for provisions of benefits to eligible
employees and dependants.
4. The trustees propose to enter into a contract with X Co
which will provide administrative and actuarial services.
5. A Co will make monthly contributions to the plans to cover
each eligible employee. These deposits will be actuarially
determined by X Co and will be sufficient to adequately fund
the plans.
6. Eligible claims by employees and dependants will be submitted
to X Co for settlement. Based on information from X Co with
respect to actual and expected claims, the trustees will transfer
monies from the Trust Fund to X Co to satisfy the claims liability.
7. Because of existing collective agreements, the benefits
described in the plans are already in place and being administered
through conventional insurance contracts.
Purpose
8. By providing the above benefits through a Health and Welfare
Trust Fund, rather than through conventional insurance contracts,
A Co will improve its cash flow position and reduce net costs
without jeopardizing the rights and security of company employees.
Ruling
9. You have requested confirmation that the plans will qualify
as "private health services plans" within the meaning
of paragraph 110(8)(a) of the Act and that the premiums are
not included in the income of the employees because of the
exemption in paragraph 6(1)(a).
10. We are unable to confirm your request as presently worded
because all of the plans do not qualify as "private health
services plans". However, provided that our understanding
of the facts as set out above is correct and the plans are
implemented in substantially the same form as set out in the
documentation accompanying your request, we confirm that the
benefit plans identified as (a), (b) and (c) in 1 above qualify
as "private health services plans" within the meaning
set out in paragraph 110(8)(a) of the Act and that the premiums
are not included in the income of the employees because of
the exemption in paragraph 6(1)(a).
11. With respect to the weekly disability expense benefit
plan, it is our opinion that this plan does not qualify as
a "private health services plan" because the coverage
under the plan is not in respect of hospital care or expense
or medical care or expense as described in subparagraphs 110(8)(a)(i)
and (ii) of the Act. It is our opinion that disability benefits
will be included in the incomes of the beneficiaries pursuant
to paragraph 6(1)(f) of the Act.
Income tax rulings are issued for the general information
of taxpayers, but are considered to be binding on the Department
only in respect of the taxpayer to whom the ruling was given
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