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: The implications of extending PHSP benefits to retirees, in situations where the employer is a corporation and where it is a sole proprietor.
Position: It is our general view that the income tax status of a plan as a "private health services plan" will be unaffected as a result of extending coverage to retired employees.
Reasons: Based on previous interpretations. However, a plan that extends coverage to a retired sole proprietor (if such an arrangement were possible) would not, in our view, qualify for the income tax treatment set out in IT-339R2, since the exemption in paragraph 6(1)(a)(i) applies only to employees and retired employees.
XXXXXXXXXX J. Gibbons
2000-001529
April 13, 2000
Dear XXXXXXXXXX:
We are replying to your facsimile received in our office on March 20, 2000, in which you requested our comments on the extension of a cost-plus "private health services plan" to "annuitants." In our telephone conversation on March 7 (Gibbons/XXXXXXXXXX), you confirmed that annuitants are retired employees. Further, you indicated that you wish to have our views of such plans where they are acquired by sole-proprietors, as well as where they are acquired by corporations. In your letter, you stated that you are in the business of selling PHSP's.
As requested, we have provided comments below concerning your enquiry. However, we cannot confirm the tax implications of particular transactions unless the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R3. Thus, our comments are of a general nature only.
Our views
It is our general view that the income tax status of a plan as a "private health services plan" (PHSP) will be unaffected as a result of extending coverage to retired employees. Further, the benefit derived by a retired employee from the employer's contribution to the plan would not be taxable by virtue of subparagraph 6(1)(a)(i) of the Income Tax Act. As well, no taxable benefit would be considered to be received by the retired employee for services provided under the plan.
Our views in the foregoing paragraph apply equally to plans sponsored by corporations and sole proprietors. However, a plan that extends coverage to a retired sole proprietor (if such an arrangement were possible) would not, in our view, qualify for the income tax treatment set out in IT-339R2, since the exemption in paragraph 6(1)(a)(i) applies only to employees and retired employees.
We trust that these comments will be of assistance.
Yours truly,
John Oulton
for Director
Business and Publications Division
Income Tax Rulings Directorate
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