A trust is considered to be an employee life and health trust for a given taxation year if it meets all the following requirements throughout the year:

• The trust's only objectives are to: 
  • provide employee benefits to current or former employees of one or more participating employers or former participating employers, or on their behalf; and
  • distribute, after the trust has been wound up, the remaining funds to the beneficiaries, other than key employees, according to their interest in the trust.
• All or substantially all of the total cost of the employee benefits applies to designated employee benefits.
• The trust meets either of the following conditions:
  • The trust is resident in Canada.
  • If the trust is not resident in Canada, benefits are provided to employees who are resident in Canada and to employees who are not resident in Canada, one or more participating employers are resident in a country other than Canada, and the trust is resident in a country in which one of the participating employers resides.
• Each beneficiary of the trust is either an employee or former employee of a participating employer or former participating employer, an individual related to the employee or former employee, or another employee life and health trust.
• The trust meets the conditions regarding the proportion of members that are key members.
• The rights of the key employees of a participating employer are not superior to the rights of most of the other beneficiaries.
• The only rights granted to a participating employer (or to a person not dealing at arm's length with the employer) are the following:
  • the right to designated benefits;
  • the right to enforce undertakings, warranties or similar obligations in order to:
    • maintain the trust as an employee life and health trust, or
    • prevent the trust from deducting the designated benefits that became payable during the taxation year because certain conditions were not met.
• The trust is administered in accordance with its terms and objectives.

Rules that apply to all employee life and health trusts

The following rules apply to all employee life and health trusts:

• The trust can deduct designated employee benefits that became payable by the trust in the taxation year. The deduction is included in the calculation of the non-capital losses for that year (refer to line 513a of Schedule D of the Trust Income Tax Return [TP-646-V]). However, no deduction is allowed if the benefits for which the contributions or premiums are provided would not be deductible in calculating the employer's income.
• Non-capital losses from one year can be carried back three years or forward seven years. However, the trust cannot carry non-capital losses to a year in which it meets one of the following conditions:
  • throughout that year, the trust does not meet all the conditions to be considered an employee life and health trust;
  • designated employee benefits that became payable by the trust in the given year cannot be deducted.