7 June 1995 Ministerial Letter 9510308 - 'ER PAYS MEDICAL PREMIUM WHEN & WHY A TAX BENEFIT SECTION 6(1)(a)

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:

when & why medical premiums became taxable for certain individuals

Position TAKEN:

premiums taxable if employer contibutes to a plan that is not a "private health services plan" as defined in the Act. Result of major revisions to the ITA in 1971 (when PHSP def'n first introduced)

Reasons FOR POSITION TAKEN:

based entirely on statute

ASSOCIATE DEPUTY MINISTER (1)
ADM'S OFFICE (2)
RETURN TO 15TH FLOOR, ALBION TOWERS

XXXXXXXXXX

June 7, 1995

Dear XXXXXXXXXX:

The Honourable David Anderson, Minister of National Revenue, has asked me to respond to your letter of March 15, 1995, in which you ask when and why medical premiums became taxable benefits for certain individuals. I apologize for the delay in replying.

Your letter explains that, as an employee, you paid income tax on medical premiums paid on your behalf by your employer, XXXXXXXXXX. You have continued to pay income tax on these premiums during your retirement because your former employer has continued to pay medical premiums on your behalf. I understand that you were recently told that while some taxpayers do pay income tax on medical premiums paid for by their employers, many do not.

Individuals generally pay tax on the value of all benefits they receive by virtue of their employment. There are, however, certain specified benefits which are statutorily excluded from this general rule, such as the benefit enjoyed by employees as a result of their employer's contributions to a registered pension plan or a private health services plan.

The Canadian income tax system underwent a thorough review in 1971. Among the changes to the Income Tax Act was the inclusion of a definition of a private health services plan. Whether an employee pays income tax as a result of the employer's contribution to a medical or dental plan depends on whether the employer is contributing to a private health services plan, as that term is defined in the Act, or to some other plan. The definition of a private health services plan includes, for example, medical and hospital insurance plans offered by Blue Cross and various life insurers. However, the definition specifically excludes provincial hospital or medical care insurance plans such as the Medical Services Plan of British Columbia.

Accordingly, where an employer makes a contribution to a private health services plan, no benefit accrues to the employee as the value of this benefit is statutorily excluded from the calculation of the employee's income. However, if the employer pays all or a portion of the employee's or former employee's premium to a provincial hospital or medical care insurance plan, the value of that benefit is added to income as there is no statutory provision to exclude the benefit from income. In other words, it is the type of plan to which an employer or former employer contributes that determines whether an employee or pensioner is taxed on the value of that benefit.

I trust my comments have addressed your concerns about this matter.

			Yours sincerely,

		Pierre Gravelle, Q.C.

S. SHORT
957-2136
JUNE 2, 1995