19 March 1996 External T.I. 9603775 - EMPLOYER'S FUND TO PROVIDE A DEATH BENEFIT

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:

tax consequences to employees and their beneficiaries arising from a fund set up to pay a death benefit as defined in the Act

Position:

plan will likely be an ebp but no amt will be included in the employee's income by reason of the plan, the beneficiary will only be taxed to the extent of 56(1)(a)(iii) and the employer will not get a deduction until the amount is paid out of the plan to a beneficiary as a death benefit

Reasons:

the EBP rules clearly contemplate a plan to provide a death benefit

A. Humenuk
XXXXXXXXXX							960377

Attention: XXXXXXXXXX

March 19, 1996

Dear Sirs:

Re: Funding of Death Benefits

We are replying to your letter of January 17, 1996 requesting an advance income tax ruling.

As discussed by telephone on February 8, 1996 (XXXXXXXXXX\Humenuk), your client's plans are not sufficiently advanced at this time to be able to establish all the pertinent facts surrounding the proposed transaction. However you would still like our views on the tax implications related to a fund set up by an employer for the purpose of ensuring that an amount of $10,000 is available upon the death of an employee to be paid to the named beneficiary or estate of that employee.

As stated in paragraph 3 of Interpretation Bulletin IT-502 "Employee Benefit Plans and Employee Trusts", an employee benefit plan includes any plan or arrangement under which an employer makes a contribution to another person for the purpose of providing future benefits to employees, former employees or persons with whom the employees or former employees do not deal at arm's length, unless the plan is specifically excluded under the definition in the Act. Unless it falls within the definition of a salary deferral arrangement or a retirement compensation arrangement, a fund which is established to make payments in the event of an employee's death to a named beneficiary or to the employee's estate will likely fall within the definition of an employee benefit plan.

As explained in paragraph 6 of the bulletin, no amount is included in an employee's income solely by reason of the employer's contribution to an employee benefit plan. To the extent that payments made out of such a plan qualify as a death benefit, as defined in subsection 248(1) of the Act, the payment will not be included in the income of the deceased employee but rather will be included in the income of the recipient to the extent provided by paragraph 56(1)(a)(iii) of the Act. The tax consequences to the employer are described in paragraphs 16 to 24 of the bulletin.

Interpretation Bulletin IT-508R "Death Benefits" which was just released on February 12, 1996 provides current information on what constitutes a death benefit for the purposes of the Act.

Your deposit will be returned under separate cover.

Yours truly,

J.A. Szeszycki
for Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch