10 January 2018 Interpretation 139614

Employers sponsor group medical and dental plans for the benefit of their employees, which qualify as a private health services plans (PHSPs), as described in IT-339R2. The PHSPs are self-insured programs with all claims adjudicated and paid by a third party professional plan administrator on behalf of the employer, who retains the legal and financial liability to pay for the plan benefits. Where a payment is made to an employee in satisfaction of a claim made under a PHSP in respect of a taxable supply of property or a service (for example, massage therapy), would the employer be eligible to claim an input tax credit (ITC) respecting the GST/HST paid by the employee on the acquisition of the property or service?

In finding that no GST/HST is payable by the employer for such supplies, so that it is not entitled to an ITC, CRA referenced para. (f.1) of “financial service,” and stated:

As a plan administrator generally pays out an approved PHSP claim on behalf of the employer, when the employer subsequently compensates the plan administrator, the employer is considered to be making a payment in satisfaction of a claim arising under an insurance policy (the PHSP). Therefore, the making of the payment by the employer is a supply of a financial service for GST/HST purposes.

… Since an exempt supply is a supply that is not subject to the GST/HST, the employer would not be considered to have paid tax when settling the PHSP claim, regardless of whether the claim included any GST/HST originally paid by the employee to the supplier of the property or service.

Employers sponsor group medical and dental plans for the benefit of their employees, which qualify as a private health services plans (PHSPs), as described in IT-339R2. The PHSPs are self-insured programs with all claims adjudicated and paid by a third party professional plan administrator on behalf of the employer, who retains the legal and financial liability to pay for the plan benefits. Where a payment is made to an employee in satisfaction of a claim made under a PHSP in respect of a taxable supply of property or a service (for example, massage therapy), would s. 175 allow the employer to claim an input tax credit respecting the tax paid by their employees on their taxable purchases of the health care services and products?

In finding that s. 175 would generally not so apply, CRA stated:

For purposes of section 175, in order for the consumption or use of the property or service by the employee to be considered to relate to the activities of the employer, there must be a direct connection between the consumption or use of the property or service and the activities engaged in by the employer.

[S]ince a medical or dental service is acquired by an employee in relation to his or her personal health and well-being, there would not be a direct connection between the service and the activities of the employer. Therefore, while the making of a payment in satisfaction of a PHSP claim may itself relate to the activities of the employer, the employee’s acquisition of a service such as massage therapy does not.