Information and Disclaimer
This interpretation letter was issued based on the specific circumstances or situation of a taxpayer or vendor and the law and tax policy in effect at the time the ruling was issued. Specific facts relevant to your situation may change the application of the tax. In accordance with the Freedom of Information and Protection of Privacy Act, all confidential and identifying information has been removed from this interpretation letter. Please be aware that any statute or policy referred to in this letter may have been superseded. Where a letter contains links to a publication, the link is to our current publication on that subject, regardless of the date that the ruling was originally issued, and the current publication may not be reflective of the information originally provided. In no event shall the Government of Ontario be liable for any damages whatsoever arising out of, or in connection with, the use of the information contained herein.
Interpretation Letter 07-0314, March 2007
We refer to your letter regarding disability plans and the application of the Employer Health Tax (EHT) Act and Retail Sales Tax (RST) Act. We have forwarded a copy of your request to the RST section, to address your retail sales tax concerns.
For EHT purposes, remuneration includes all payments, benefits, and allowances which are required to be included in the income of its employee under section 5, 6, or 7 of the Income Tax Act (ITA) (Canada).
Paragraphs 6(1)(f) and (g) of the ITA (Canada) state that all amounts received from an employee benefit plan or employment insurance plan are income from an office or employment in the year received.
For federal income tax purposes, if an employer has contributed to a disability plan, the disability benefits are included in the income of the employee, regardless of how the plan is administered.
For EHT purposes, when the benefits are taxable for federal purposes, we look at whether there is an employer-employee relationship between the payer and recipient of the benefit. EHT applies where the benefits are paid directly by the employer to the employee or made under the terms of an Administrative Services Only (ASO) plan.
You asked us to confirm whether EHT applies to the deposits (less administration fees) made to a funded plan, and to the payments made from an unfunded plan, where there is no Health and Welfare Trust in place.
EHT applies to the disability payments made directly by the employer, or made under the terms of an ASO plan. In both cases, the employer is ultimately responsible for the liability of the payments. For EHT purposes, it is not relevant whether a particular disability plan is funded or unfunded. EHT applies to the disability payments made to employees under either of these types of benefit plans.
You also asked us to confirm that, if an employer has a self-insured disability plan funded through a Health and Welfare Trust through which taxable disability payments are made to the claimants, the employer may pay EHT on the distributions from the trust, and pay RST on the administrative fees but not on other contributions to the trust.
With a Health and Welfare Trust, although the benefit payments are taxable under section 6 of the ITA, the payments are not made by the employer. Therefore, no EHT applies to these payments. We have no authority to accept EHT made on these payments in order to facilitate an RST exemption.
