CRA makes a further COVID-related extension of the period for carrying forward unused HCSA credits

In 2020-0846751E5, CRA noted that health care spending accounts (“HCSA”) that comply with IT-529 generally provide that the HCSA can permit the carry-forward of either unused credits or eligible medical expenses (but not both) for a period not exceeding 12 months, so as to not disqualify the HCSA from the exemption in s. 6(1)(a)(i) for private health services plans (“PHSPs”). CRA further announced in 2020-0846751E5:

In these extraordinary [COVID] circumstances, a HCSA that qualifies as a PHSP and which has unused credits expiring between March 15 and December 31, 2020, could temporarily permit the carry forward of those unused credits for a … period of up to six months [which] would generally … not, in and of itself, disqualify the HCSA from being a PHSP. [emphasis added]

In generally extending these periods, CRA now stated:

In light of the severity of the second wave of the COVID-19 pandemic, the CRA will allow a HCSA that qualifies as a PHSP and which has unused credits expiring between March 15, 2020 and March 16, 2021, to temporarily carry forward those unused credits for a period of up to 12 months. … However, since a HCSA must involve a reasonable element of risk to qualify as a PHSP, it is our view that any further extension of the temporary carry-forward period beyond 12 months, would likely disqualify the HCSA from being a PHSP. [emphasis added]

Neal Armstrong. Summary of 26 January 2021 External T.I. 2020-0857841E5 under s. 248(1) - private health services plan.