Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues: Could a health and welfare trust be exempt from the 21-year rule in subsection 104(4) of the Act because of the exception in paragraph (g) of the definition of "trust" in subsection 108(1)?
Position: No.
Reasons: Interests have not vested indefeasibly and there are interests which may become effective in the future. If exempted, they should be covered in paragraph (a) of the definition of “trust” in subsection 108(1) of the Act. However, these trusts are not specifically covered under that paragraph.
XXXXXXXXXX M. Lemire
981364
Attention: XXXXXXXXXX
November 30, 1998
Dear Sirs:
This is in reply to your letter of May 20, 1998 in which you requested our views on the interpretation of paragraph (g) of the definition of “trust” in subsection 108(1) of the Income Tax Act (the “Act”) to a Health and Welfare Trust in relation to the 21-year deemed disposition rule under subsection 104(4) of the Act.
We are not able to provide you with any specific comments other than by way of an advance income tax ruling. The procedure for requesting an advance tax ruling is laid out in Information circular 70-6R3 dated December 30, 1996. Nevertheless, we are prepared to provide some general comments.
Subsection 104(4) of the Act provides a general rule that every trust will be deemed to have disposed of certain properties and to have reacquired them every 21 years. Paragraph (g) of the definition of “trust” in subsection 108(1) of the Act provides an exception to this general rule. More particularly, for a trust to qualify under this exception, paragraph (g) of that definition requires all interests in the trust to have vested indefeasibly and that there be no interest which may become effective in the future. In addition, paragraph (a) of that definition also excludes an employee benefit plan and certain other trusts from this general rule.
You are of the view that a health and welfare trust could meet the requirements of paragraph (g) of the definition of “trust” in subsection 108(1) of the Act.
For an individual to be a beneficiary under a health and welfare trust, we understand that the individual must generally be an employee (or an employee’s family member) of a participating employer. We also understand that the list of beneficiaries under a health and welfare trust may change from time to time to include new employees. In addition, we understand that an employee (or any family member of the employee) is generally not entitled to any benefits under the health and welfare trust after he or she ceases to be an employee. Finally, we understand that the beneficiaries while employees may never receive, or be entitled to, any benefits under the terms of a health and welfare trust (e.g. if the beneficiary is a healthy person). Although we understand from your letter that the employer cannot retain any right to the funds held by a health and welfare trust, this, in itself, would not be sufficient for us to conclude that all interests in the health and welfare trust have vested indefeasibly. We are of the opinion that a health and welfare trust does not qualify under the exception in paragraph (g) of the definition of “trust” in subsection 108(1) of the Act as the interests have not vested indefeasibly and there are some interests that will become effective in the future.
We understand that a trust which does meet the requirements set out in Interpretation Bulletin IT-85R2 for health and welfare trusts may qualify as an employee benefit plan and therefore be specifically excluded under paragraph (a) of the definition of “trust” in subsection 108(1) of the Act. However, this paragraph does not specifically cover health and welfare trusts.
Finally, please note that Revenue Canada does not write or amend legislation. The function of Revenue Canada is to administer the laws as set out in the Act. The Department of Finance is responsible for the formulation of tax policy and for writing and considering amendments to existing legislation. As this issue appears to involve a matter of tax policy, you may want to pursue it with the Department of Finance.
This opinion is provided in accordance with paragraph 22 of Information circular 70-6R3 dated December 30, 1996.
We trust our comments will be of assistance to you.
Your truly,
T. Murphy
Manager
Trusts Section
Resources, Partnerships and Trusts Division
Income Tax Rulings and Interpretations directorate
Policy and Legislation Branch
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