May 2017 CPA Alberta Roundtable, ITA Q.9

A small business only having employee(s) who are also shareholder(s), establishes a notional health care spending account(s) (a type of “private health services plan” under s. 248(1)) under which the corporation administers the accounts for its employee(s) as part of their contract(s) of employment. Would the benefits be in respect of a private health services plan? CRA responded:

[A]s noted in … IT-529 … “[I]n order for a health care spending account to qualify as a plan of insurance, there must be a reasonable element of risk. For example, if the plan or arrangement is such that there is little risk that the employee will not be reimbursed for the full amount allocated to that employee annually, then the arrangement is not a plan of insurance and therefore, not a private health services plan.” In a situation where a corporation provides a self-insured HCSA for its only employee who is also its sole shareholder (sole employee-shareholder), it is likely that the sole employee-shareholder would be reimbursed for the full amount allocated to him or her annually. …

A small business only having employee(s) who are also shareholder(s), establishes a notional health care spending account(s) (a type of “private health services plan” under s. 248(1)) under which the corporation administers the accounts for its employee(s) as part of their contract(s) of employment. Would the benefits be derived by the individual’s employment? CRA responded:

[T]here is a general presumption that a sole employee-shareholder receives a benefit or an allowance in his or her capacity as a shareholder since the individual can significantly influence business policy. This presumption may not apply if the benefit or allowance is comparable (in nature and amount) to benefits and allowances generally offered to non-shareholder employees of similar-sized businesses, who perform similar services and have similar responsibilities.

A small business only having one or more employees who are also shareholders, establishes a notional health care spending accounts (“HCSA”) (a type of “private health services plan” under s. 248(1)) under which the corporation administers the accounts for its employees as part of their contract(s) of employment. After noting that as per IT-529 “if the plan or arrangement is such that there is little risk that the employee will not be reimbursed for the full amount allocated to that employee annually, then the arrangement is not a plan of insurance and therefore, not a private health services plan,” CRA stated:

In a situation where a corporation provides a self-insured HCSA for its only employee who is also its sole shareholder …it is likely that the sole employee-shareholder would be reimbursed for the full amount allocated to him or her annually.

CRA also indicated that the “general presumption that a sole employee-shareholder receives a benefit or an allowance in his or her capacity as a shareholder … may not apply if the benefit or allowance is comparable (in nature and amount) to benefits and allowances generally offered to non-shareholder employees of similar-sized businesses, who perform similar services and have similar responsibilities.”