31 May 2006 External T.I. 2005-0161311E5 - Wellness Spending Accounts

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.

Principal Issues: Tax implications of various flexible benefits programs.

Position: Question of Fact.

Reasons: General information provided.

							2005-016131
XXXXXXXXXX 						Luisa A. Majerus, CA
(613) 832-3488
May 31, 2006

Dear XXXXXXXXXX:

Re: Wellness Spending Account

This is in reply to your letter dated November 25, 2005, regarding the tax status of group wellness spending accounts. We apologize for the delay in responding.

Specifically, you have provided us with three different scenarios in which the employer wishes to offer benefits under a flexible benefit plan to its employees. In each of the scenarios the employer will allocate credits to the employees wellness spending accounts. The employees can then use the credits to obtain various services as detailed under the plan. The employer will pay the service providers directly for the services provided to the employees. The types of services offered may include wellness and fitness services, learning and development courses, technology training, travel services, childcare and elder care services. You have asked us to comment, in each of the scenarios, whether or not the Canada Revenue Agency ("CRA") would have any concerns with the scenarios described above.

Our Comments

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. We are, however, prepared to provide the following comments.

Generally, individuals receiving benefits of any kind whatever in the course of or in respect of an office or employment will be subject to an income inclusion under paragraph 6(1)(a) of the Income Tax Act (the "Act"). However, as provided in paragraph 7 of our Interpretation Bulletin, IT-529 Flexible Employee Benefit Programs, the allocation of flex credits, prior to the beginning of the plan year, by an employer does not, in and by itself, normally give rise to a taxable benefit in the hands of the employee on the assumption that flex credits have no redemptive value and that nothing of value is forfeited by the employee to acquire such credits. However, a flex credit, which can be saved and negotiated for cash at any time, has a redemption value and is thus not considered to be a notional credit.

Whether or not a taxable benefit arises upon the employee's use of the allocated credits under a flexible employee benefit program is dependent on the facts in each situation. Our Interpretation Bulletin, IT-470R (Consolidated) Employees' Fringe Benefits, provides a list of the more common taxable benefits and non-taxable privileges.

In the absence of more specific information, we are of the view that employees, under the plan you described, will be in receipt of a taxable benefit for any of the services described. We do not have sufficient information to conclude whether the timing of the taxation of the benefits would be when the flex credits are allocated or when the services are received.

Copies of our Interpretation Bulletins can be found on our website at www.cra-arc.gc.ca.

We trust this information is helpful.

Yours truly,

Randy Hewlett
For Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch