Income Tax Act (R.S.C., 1985, c. 1 (5th Supp.))

Act current to 2014-09-15 and last amended on 2014-06-27. Previous Versions

Employee Life and Health Trust

Marginal note:Definitions
  •  (1) The following definitions apply in this section.

    “actuary”

    « actuaire »

    “actuary” means a Fellow of the Canadian Institute of Actuaries.

    “class of beneficiaries”

    « catégorie de bénéficiaires »

    “class of beneficiaries” of a trust means a group of beneficiaries who have identical rights or interests under the trust.

    “designated employee benefit”

    « prestation désignée »

    “designated employee benefit” means a benefit from a group sickness or accident insurance plan, a group term life insurance policy or a private health services plan.

    “employee”

    « employé »

    “employee” means a current or former employee of an employer and includes an individual in respect of whom the employer has assumed responsibility for the provision of designated employee benefits as a result of the acquisition by the employer of a business in which the individual was employed.

    “key employee”

    « employé clé »

    “key employee”, of an employer in respect of a taxation year, means an employee who

    • (a) was at any time in the taxation year or in a preceding taxation year, a specified employee of the employer; or

    • (b) was an employee whose employment income from the employer in any two of the five taxation years preceding the year exceeded five times the Year’s Maximum Pensionable Earnings (as determined under section 18 of the Canada Pension Plan) for the calendar year in which the employment income was earned.

  • Marginal note:Employee life and health trust

    (2) A trust that is established for employees of one or more employers (each referred to in this subsection as a “participating employer”) is an employee life and health trust for a taxation year if, throughout the taxation year, under the terms that govern the trust,

    • (a) the only purpose of the trust is to provide designated employee benefits to, or for the benefit of, persons described in subparagraphs (d)(i) or (ii); and

    • (b) on wind-up or reorganization, the property of the trust may only be distributed to

      • (i) each remaining beneficiary of the trust who is described in subparagraph (d)(i) or (ii) (other than a key employee or an individual who is related to a key employee) on a pro rata basis,

      • (ii) another employee life and health trust, or

      • (iii) after the death of the last beneficiary described in subparagraph (d)(i) or (ii), Her Majesty in right of Canada or a province;

    • (c) the trust is required to be resident in Canada, determined without reference to section 94;

    • (d) the trust may not have any beneficiaries other than persons each of whom is

      • (i) an employee of a participating employer,

      • (ii) an individual who, in respect of an employee of a participating employer, is (or, if the employee is deceased, was, at the time of the employee’s death)

        • (A) the spouse or common law partner of the employee, or

        • (B) related to the employee and either a member of the employee’s household or dependent on the employee for support,

      • (iii) another employee life and health trust, or

      • (iv) Her Majesty in right of Canada or a province;

    • (e) the trust contains at least one class of beneficiaries where

      • (i) the members of the class represent at least 25% of all of the beneficiaries of the trust who are employees of the participating employer, and

      • (ii) at least 75% of the members of the class are not key employees of the participating employer;

    • (f) the rights under the trust of each key employee of a participating employer are not more advantageous than the rights of a class of beneficiaries described in paragraph (e);

    • (g) no participating employer, nor any person who does not deal at arm’s length with a participating employer, has any rights under the trust as a beneficiary or otherwise, except rights to

      • (i) designated employee benefits,

      • (ii) to enforce covenants, warranties or similar provisions regarding

        • (A) the maintenance of the trust as an employee life and health trust, or

        • (B) the operation of the trust in a manner that prevents subsection (3) from applying to prohibit the deduction of an amount by the trust under subsection 104(6), or

      • (iii) prescribed payments;

    • (h) the trust may not make a loan to, or an investment in, a participating employer or a person or partnership with whom the participating employer does not deal at arm’s length;

    • (i) representatives of one or more participating employers do not constitute the majority of the trustees of the trust or otherwise control the trust.

  • Marginal note:Breach of terms, etc.

    (3) No amount may be deducted in a taxation year by an employee life and health trust pursuant to subsection 104(6) if in the taxation year the trust

    • (a) is not operated in accordance with the terms required by subsection (2) to govern the trust, or

    • (b) is operated or maintained primarily for the benefit of one or more key employees or their family members described in subparagraph 2(d)(ii).

  • Marginal note:Deductibility of employer contributions

    (4) In computing the income of an employer,

    • (a) the employer may deduct for a taxation year the portion of its contributions to an employee life and health trust made in the year that may reasonably be regarded as having been contributed to enable the trust to

      • (i) pay premiums to an insurance corporation that is licensed to provide insurance under the laws of Canada or a province for insurance coverage for the year or a prior year in respect of designated employee benefits for beneficiaries described in subparagraph (2)(d)(i) or (ii), or

      • (ii) otherwise provide

        • (A) group term life insurance as described in clause 18(9)(a)(iii)(B), or

        • (B) any designated employee benefits payable in the year or a prior year to, or for the benefit of, beneficiaries described in subparagraph (2)(d)(i) or (ii); and

    • (b) the portion of any contribution made to an employee life and health trust that exceeds the amount deductible under paragraph (a) and that may reasonably be regarded as enabling the trust to provide or pay benefits described in subparagraphs (a)(i) or (ii) in a subsequent taxation year is deductible for that year.

  • Marginal note:Actuarial determination

    (5) For the purposes of subsection (4), if, in respect of an employer’s obligations to fund an employee life and health trust, a report has been prepared by an independent actuary, using accepted actuarial principles and practices, before the time of a contribution by the employer, the portion of the contribution that the report specifies to be the amount that the employee life and health trust is reasonably expected to pay or incur in a taxation year in order to provide designated employee benefits to beneficiaries described in subparagraph (2)(d)(i) or (ii) for a taxation year is, in the absence of evidence to the contrary, presumed to have been contributed to enable the trust to provide those benefits for the year.

  • Marginal note:Multi-employer plans

    (6) Notwithstanding subsection (4) and paragraph 18(9)(a), an employer may deduct in computing its income for a taxation year the amount that it is required to contribute for the year to an employee life and health trust if the following conditions are met at the time that the contribution is made:

    • (a) it is reasonable to expect that

      • (i) at no time in the year will more than 95% of the employees who are beneficiaries of the trust be employed by a single employer or by a related group of employers, and

      • (ii) at least 15 employers will contribute to the trust in respect of the year or at least 10% of the employees who are beneficiaries of the trust will be employed in the year by more than one participating employer and, for the purpose of this condition, all employers who are related to each other are deemed to be a single employer;

    • (b) employers contribute to the trust under a collective bargaining agreement and in accordance with a negotiated contribution formula that does not provide for any variation in contributions determined by reference to the financial experience of the trust; and

    • (c) contributions that are to be made by each employer are determined, in whole or in part, by reference to the number of hours worked by individual employees of the employer or some other measure that is specific to each employee with respect to whom contributions are made to the trust.

  • Marginal note:Maximum deductible

    (7) The amount deducted in a taxation year by an employer in computing its income in respect of contributions made to an employee life and health trust shall not exceed the amount determined by the formula

    A – B

    where

    A 
    is the total of all amounts contributed by the employer to the trust in the year or in a preceding taxation year; and
    B 
    is the total of all amounts deducted by the employer in a preceding taxation year in respect of amounts contributed by the employer to the trust.
  • Marginal note:Employer promissory note

    (8) If an employer issues a promissory note or provides other evidence of its indebtedness to an employee life and health trust in respect of its obligation to the trust,

    • (a) the issuance of the note or the provision of the evidence of indebtedness to the trust is not a contribution to the trust; and

    • (b) a payment by the employer to the trust in full or partial satisfaction of its liability under the note or the evidence of indebtedness, whether stated to be of principal or interest or any other amount, is deemed to be an employer contribution to the trust that is subject to this section and not a payment of principal or interest on the note or indebtedness.

  • Marginal note:Trust status — subsequent times

    (9) For the purposes of determining whether an amount is deductible by an employer under subsection (4), if a trust was an employee life and health trust at the time that a promissory note or other evidence of indebtedness referred to in subsection (8) was issued or provided, the trust is deemed to be an employee life and health trust at each time that an employer contribution is deemed to have been made under paragraph (8)(b) in respect of the note or other indebtedness.

  • Marginal note:Employee contributions

    (10) For the purposes of paragraph 6(1)(f), subsection 6(4) and paragraph 118.2(2)(q), employee contributions to an employee life and health trust, to the extent that they are, and are identified by the trust at the time of contribution as, contributions in respect of a particular designated employee benefit, are deemed to be payments by the employee in respect of the particular designated employee benefit.

  • Marginal note:Income inclusion

    (11) If a trust that is, or was, at any time, an employee life and health trust pays an amount as a distribution from the trust to any person in a taxation year, the amount of the distribution shall be included in computing the person’s income for the year, except to the extent that the amount is

    • (a) a payment of a designated employee benefit that is not included in the person’s income because of section 6; or

    • (b) a distribution to another employee life and health trust that is a beneficiary of the employee life and health trust.

  • Marginal note:Deemed separate trusts

    (12) Where contributions have been received by an employee life and health trust from more than one employer, the trust is deemed to be a separate trust established in respect of the property held for the benefit of beneficiaries described in subparagraph (2)(d)(i) or (ii) in respect of a particular employer, if

    • (a) the trustee designates the property to be held in a separate trust for the benefit of those beneficiaries in an election made on or before the filing-due date of the first taxation year of the separate trust described in this subsection; and

    • (b) under the terms of the trust, contributions from the employer and the income derived from those contributions accrues solely for the benefit of those beneficiaries.

  • Marginal note:Non-capital losses

    (13) No non-capital loss is deductible by an employee life and health trust in computing its taxable income for a taxation year, except as provided by subsections 111(7.3) to (7.5).

  • 2010, c. 25, s. 34.