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

Full Document:  

Act current to 2022-09-22 and last amended on 2022-09-01. Previous Versions

PART IIncome Tax (continued)

DIVISION GDeferred and Other Special Income Arrangements (continued)

Employee Life and Health Trust

Marginal note:Definitions

  •  (1) The following definitions apply in this section.

    actuary

    actuary means a Fellow of the Canadian Institute of Actuaries. (actuaire)

    class of beneficiaries

    class of beneficiaries of a trust means a group of beneficiaries who have identical rights or interests under the trust.  (catégorie de bénéficiaires)

    designated employee benefit

    designated employee benefit means a benefit that is  

    • (a) from a group sickness or accident insurance plan;

    • (b) from a group term life insurance policy;

    • (c) from a private health services plan;

    • (d) in respect of a counselling service described in subparagraph 6(1)(a)(iv); or

    • (e) not a death benefit, but that would be a death benefit if the amounts determined for paragraphs (a) and (b) of the definition death benefit in subsection 248(1) were nil. (prestation désignée)

    employee

    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. (employé)

    key employee

    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. (employé clé)

  • 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 benefits to, or for the benefit of, persons described in subparagraph (d)(i) or (ii) and all or substantially all of the total cost of the benefits is applicable to designated employee benefits;

    • (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 meets one of the following conditions:

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

      • (ii) if the condition in subparagraph (i) is not met, it is the case that

        • (A) employee benefits are provided to employees who are resident in Canada and to employees who are not resident in Canada,

        • (B) one or more participating employers are employers that are resident in a country other than Canada, and

        • (C) the trust is required to be resident in a country in which a participating employer resides;

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

      • (i) an employee of a participating employer or former participating employer,

      • (ii) an individual who, in respect of an employee of a participating employer or former 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 meets one of the following conditions:

      • (i) it contains at least one class of beneficiaries where

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

        • (B) either of the following conditions is met:

          • (I) at least 75% of the members of the class are not key employees of any of the participating employers under the trust, or

          • (II) the contributions to the trust in respect of key employees who deal at arm’s length with their employer are determined in connection with a collective bargaining agreement, or

      • (ii) in respect of the private health services plan under the trust, the total cost of benefits provided to each key employee (and to persons described in subparagraph (2)(d)(ii) in respect of the key employee) in relation to the year does not exceed the amount determined by the formula

        $2,500 × A(B/C)

        where

        A
        is the total number of persons each of whom
        • (A) is a person to whom designated employee benefits are provided under the plan, and

        • (B) is the key employee or a person described in subparagraph (2)(d)(ii) in respect of the key employee,

        B
        is the number of days in the year that the key employee was employed on a full-time basis by an employer that participates in the plan, and
        C
        is the number of days in the year;
    • (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; and

    • (h) [Repealed, 2021, c. 23, s. 30]

    • (i) trustees who do not deal at arm’s length with one or more participating employers must not constitute the majority of the trustees of 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, unless it is reasonable to conclude that its trustees neither knew nor ought to have known that designated employee benefits have been provided to, or contributions have been made in respect of, beneficiaries other than those described in subparagraph (2)(d)(i) or (ii); or

    • (b) provides any benefit for which, if the benefit had been paid directly to the employee and not out of the trust, the contributions or premiums would not be deductible in computing the income of an employer in respect of any taxation year.

  • 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:Deductibility — collectively bargained or similar agreement

    (6) Despite 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) the employer contributes to the trust in accordance with a contribution formula that does not provide for any variation in contributions determined by reference to the financial experience of the trust and either of the following conditions is met:

      • (i) if there is a collective bargaining agreement, the trust provides benefits

        • (A) negotiated under the collective bargaining agreement, or

        • (B) under a participation agreement that are substantially the same as under the collective bargaining agreement, or

      • (ii) in any other case, the trust provides benefits in accordance with an arrangement that meets the following conditions:

        • (A) there is a legal requirement for each employer to participate in accordance with the terms and conditions that govern the trust,

        • (B) there are a minimum of 50 beneficiaries under the trust who are employees of the participating employers in respect of the trust, and

        • (C) each employee who is a beneficiary under the trust deals at arm’s length with each participating employer in respect of the trust; and

    • (b) 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).

  • Marginal note:Conditions — deemed employee life and health trust

    (14) Subsection (15) applies in respect of a trust if

    • (a) the trust was established before February 28, 2018;

    • (b) the contributions to the trust are determined in connection with a collective bargaining agreement;

    • (c) all or substantially all of the employee benefits provided by the trust are designated employee benefits; and

    • (d) the trust elects in prescribed form and manner that subsection (15) applies as of a particular date after 2018.

  • Marginal note:Deemed employee life and health trust

    (15) If this subsection applies in respect of a trust,

    • (a) the trust is deemed for the purposes of the Act to be an employee life and health trust from the particular date referred to in paragraph (14)(d) until the earliest of

      • (i) the end of 2022,

      • (ii) the day that the trust satisfies the conditions in subsection (2), and

      • (iii) any day on which the condition in paragraph (14)(c) is not satisfied; and

    • (b) at any time that the trust is an employee life and health trust because of paragraph (a),

      • (i) subsection 111(7.5) applies to the trust as if the reference in paragraph (b) of that subsection to “subsection 144.1(3)” were read as a reference to “paragraph 144.1(3)(b)”, and

      • (ii) subsection (3) applies to the trust without reference to its paragraph (a).

  • Marginal note:Trust-to-trust transfer

    (16) If a property is transferred from a trust that provides employee benefits substantially all of which are designated employee benefits (referred to in this subsection as the “transferor trust”) to an employee life and health trust (referred to in this subsection as the “receiving trust”), and if the Minister has been so notified in prescribed form, then

    • (a) the transferred property is deemed to have been disposed of by the transferor trust, and to have been acquired by the receiving trust, for an amount equal to the cost amount of the property to the transferor trust immediately before the disposition; and

    • (b) section 107.1 does not apply to the transfer.

  • Marginal note:Deductibility of transferred property

    (17) If subsection (16) applies to a transfer of property to an employee life and health trust, the transfer shall not be considered to be a contribution to the employee life and health trust for the purposes of subsections (4) and (6).

  • Marginal note:Requirement to file

    (18) A trust shall, on or before its first filing-due date after 2021, notify the Minister in prescribed form that it is an employee life and health trust if

    • (a) prior to February 27, 2018, it provided employee benefits substantially all of which are designated employee benefits;

    • (b) after February 26, 2018, it becomes an employee life and health trust because it satisfies the conditions in subsection (2); and

    • (c) subsections (15) and (16) do not apply to the trust.

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • 2010, c. 25, s. 34
  • 2021, c. 23, s. 30
 
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