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 CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues: Whether administration costs incurred by a health and welfare trust are deductible in computing the income of the trust.

Position: Question of fact.

Reasons: Unless there is a specific provision in the Act which denies their deductibility, administration costs, as described in paragraph 12 of IT-85R2, incurred by a health and welfare trust would be deductible in computing the income of the trust.

2002-013612
XXXXXXXXXX A. Seidel
(613) 957-2058
September 9, 2002

Dear XXXXXXXXXX:

Re: Health and Welfare Trust

We are writing in response to your letters dated April 18 and August 12, 2002, concerning the deductibility of various administration costs incurred by a health and welfare trust ("H&WT").

Background

General administration of a H&WT could be undertaken by the H&WT, an insurance company, under an insured long-term disability plan, or by a management company under an "administrative services only" contract to administer a long-term disability claim. In all three scenarios, the costs associated with such administration activities would be payable by the H&WT. You query whether the amounts paid, directly or indirectly by a H&WT, in respect of administration activities, are deductible in computing the income of the H&WT.

The particular circumstances in your letter, on which you have asked for our views, appear to be a factual situation involving a specific taxpayer. As explained in Information Circular 70-6R5, it is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an advance income tax ruling. Should your situation involve a specific taxpayer and a completed transaction, you should submit all relevant facts and documentation to the appropriate tax services office for their views. However, we are prepared to offer the following general comments which may be of assistance.

Whether a particular expenditure is deductible in computing the income for the year of a H&WT is a question of fact that can only be determined by reviewing all of the circumstances applicable to a particular situation.

Interpretation Bulletin IT-85R2 discusses the tax treatment to be accorded to a H&WT that is administered by an employer through a trust. Paragraph 12 of Interpretation Bulletin IT-85R2 discusses in general terms, the deductions that a H&WT may claim in computing the trust's income for tax purposes. It states that fees paid to a management company to administer the H&WT are deductible in computing income unless they are specifically denied under the Act. Subject to the above limitation, it is our view that general administration costs incurred directly by a H&WT would be deductible in computing the income of the H&WT. Furthermore, such general administration costs would also be deductible by the H&WT where such costs are incurred indirectly by an insurance company under an insured disability plan, or by a management company under an "administrative services only" arrangement on behalf of the H&WT.

Yours truly,

John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch

- 2 -