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Update: Bill C-13 impact on benefit trusts

On December 15, 2011, Bill C-13 received Royal Assent.

This bill requires that self-insured employer funded wage loss replacement plans deduct Canada Pension Plan (CPP) contributions from benefits. This legislative change is related to the reversal of an earlier Canada Revenue Agency (CRA) ruling regarding the Toronto Transit Commission/Revenue Canada case and a clarification of language surrounding pensionable earnings with respect to CPP. Quebec Pension Plan (QPP) premiums, insured disability programs, salary continuance/sick bank arrangements, and non-taxable ASO disability programs are not affected by Bill C-13.

The March and April 2012 editions of News & Views noted a lack of clarity in the application of Bill C-13 to benefit trusts. Particularly for multi-employer plans, where plan members may be employed by several employers, practical application of the legislation and remittance of CPP contributions would be very complex. If the trust is deemed to be the employer, there may be additional costs to the fund as it would be required to remit CPP contributions.

On behalf of several plan sponsors, the Multi-Employer Benefit Plan Council of Canada requested clarity from the CRA as to whether the new legislation applies to benefit trusts. The CRA has confirmed that disability benefits would require CPP contributions only if the employer:

  • funded any part of the plan; and
  • exercised a degree of control over the terms of the plan; and
  • determined the eligibility for benefits.

In general, multi-employer plans would not satisfy all three conditions. While employers typically fund part or all of the plan, they normally do not have control over the terms of the plan nor determine benefit eligibility. Given this, the initial interpretation that benefit trusts will not be subject to the application of Bill C-13, assuming they do not satisfy all of the above criteria, remains correct. Please note that CRA’s interpretation was made on benefit trusts in general and direct guidance regarding a particular plan can be made only after reviewing the specific details of the given plan.