17 July 2000 Internal T.I. 2000-0032307 - HEALTH CARE PREMIUMS CASH EQUIVALENT

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: A company pays the premiums for provincial health care for its retired employees who reside in a particular province. Will a cash equivalent amount equal to the premiums paid for a retiree resident in the province which is paid to out-of-province or out-of-country retirees be taxable?

Position: Yes.

Reasons: The cash equivalents should be treated the same as the premiums paid for retirees resident in the province.

		July 17, 2000

	INTERNATIONAL TSO	HEADQUARTERS
	Alison R. MacKenzie	M.P. Sarazin
	Resource Officer	824-5441
	Non-Resident Withholding Accounts Division
	Client Services Directorate
		2000-003230

Medical Coverage Cash Equivalent Paid to Non-Resident Pensioners

This is in reply to your memorandum of June 15, 2000, wherein you requested our comments regarding the application of the Income Tax Act (the "Act") to medical coverage cash equivalent payments being made by XXXXXXXXXX (the "Company") to its non-resident pensioners.

Under a XXXXXXXXXX agreement, the Company pays the Medical Services Plan of BC (MSP) premiums and Extended Health Plan (EHP) premiums for coverage provided to its retirees that reside in BC. The Company pays the cash equivalent of the annual cost of the MSP and EHP premiums for a retiree resident in BC to qualifying out-of-province or out-of-country retirees that apply for the payment.

You have noted that paragraphs 2 and 3 of Interpretation Bulletin IT-247 (Employer's Contribution to Pensioner's Premiums Under Provincial Medical and Hospital Service Plans) discuss former employer payments of retiree premiums for provincial hospital and medical care insurance plans. Payments of premiums that are made under an agreement between the retiree and the former employer negotiated immediately before, during or immediately after the retiree's former period of employment are taxable under paragraph 6(3)(b) of the Act. Where paragraph 6(3)(b) does not apply, the amounts paid are considered "superannuation or pension benefits" and are included in the retirees income under paragraph 56(1)(a) of the Act.

Comments

We are of the view that the cash equivalent payments (as described above) paid by the Company to out-of-province and out-of-country retirees would be treated in the same manner as the payments of the premiums for provincial hospital and medical care insurance plans paid by the Company for its BC retirees. Consequently, former employees who receive the cash equivalent payments by virtue of the XXXXXXXXXX agreement would include the amounts in income under paragraph 6(3)(b) of the Act and retirees, if any, that do not receive the cash equivalent payments by virtue of the 1991 agreement would include the cash equivalent payments in income under paragraph 56(1)(a) of the Act.

We trust our comments will be of assistance to you.

Patricia Spice
for Director
Financial Industries Division
Income Tax Rulings Directorate