2014-0558931E5 Flexible Benefit Plan

Principal Issues: Whether an employee can change his selection of benefits under a flexible benefit plan before the plan year has commenced without affecting the status of the plan, or having adverse tax consequences to the employee.

Position: See response.

Reasons: See response.

Author: Trop, Shiri
Section: 6(1)(a)

XXXXXXXXXX
                                                                                                                                                                   2014-055893

April 23, 2015

Dear XXXXXXXXXX:

Re:  Flexible benefit plan

We are writing in response to your correspondence of November 28, 2014, wherein you inquired about changing benefit selections under a flexible benefit plan (the “plan”).  In the situation described, employees are given an enrolment period by the employer (between XXXXXXXXXX to XXXXXXXXXX) to make their annual benefit selections for the plan year commencing on XXXXXXXXXX.  You have asked if employees can amend their XXXXXXXXXX benefit selections after the enrolment period, but before the start of the plan year, without affecting the status of the plan, or having adverse tax consequences to the employee.

Our Comments

This technical interpretation provides general comments about the provisions of the Income Tax Act (the Act) and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R6, Advance Income Tax Rulings and Technical Interpretations.

According to paragraph 5 of Interpretation Bulletin IT-529, Flexible Employee Benefit Programs (“IT-529”), in order for an employer to be entitled to segregate the taxable and non-taxable benefits offered under the umbrella of a plan, employees are required to choose which benefits will be provided under the plan and how the benefits will be funded prior to the beginning of the plan year.  In addition, the selection must be irrevocable throughout the plan year unless, as noted in paragraph 6 of IT-529, employment circumstances change, or a life event occurs. 

In our view, where an employee makes a benefit selection during the enrolment period, and then wishes to change that selection prior to the start of the plan year, the selection can be changed without affecting the status of the plan, or having adverse tax consequences to the employee. 

We trust these comments will be of assistance to you.

Yours truly,

Nerill Thomas-Wilkinson, CPA, CA
Manager
Business and Employment Income Section
Business and Employment Division
Income Tax Rulings Directorate

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