31 May 2001 External T.I. 2001-0072855 - CALU; MEDICAL EXPENSES

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:

1. whether plan is PHSP if expenses of persons not listed in 118.292)(q)?

2. whether medical expense of person if person is entitled to be reimbursed by a health plan

Position:

1. no
2. no

Reasons:

1. 118.2(2)(q)
2. 118.2(3)(b)

CALU - Conference for Advanced Life Underwriting (2001)

Question 9

Long-term Care Insurance

An increasing number of insurance companies are offering long-term care ("LTC") insurance in Canada. LTC insurance coverage is provided for both care in a long-term care facility (e.g., licensed convalescent, custodial, nursing or retirement homes providing continuous nursing services) and medically necessary services performed by qualified medical practitioners in the home of the person who is insured.

Although the specific features, terms and conditions of policies issued by different companies may vary, for purposes of the questions posed below, assume that, unless otherwise noted, the policy is a stand-alone individual contract, the key provisions of which are as follows:

1. A per diem benefit of the amount specified in the policy (e.g. $100 per day) will be paid for each day that the person who is insured is a resident in a LTC facility, provided that the residency is medically necessary and is based on the recommendation of a physician.

2. The cost of reasonable daily expenses incurred for home care services will be reimbursed up to a specified per diem maximum (e.g. $100 per day). The home care benefit will be paid provided that the services are:

• medically necessary, based on the recommendation of a physician, and
• the proper treatment of the condition would necessitate care in a hospital or LTC facility in the absence of the home care program.

3. The benefits are payable to the insured or to such other beneficiary as is designated by the owner of the policy.

4. The policy owner is required to pay level annual premiums for a maximum period of 20 years.

5. In the event that an insured dies without making a claim under the policy, the insurer will pay a death benefit to the beneficiary designated by the policy owner of an amount equal to all premiums previously paid under the policy.

6. Except as described in 5 above, the policy owner is not entitled to receive any amount upon the surrender, cancellation or other termination of the policy.

A. Will all or any portion of the premiums paid for LTC insurance as described above qualify as medical expenses eligible for the medical expense tax credit where the person who is insured is: the owner of the policy, the spouse or other family member of the policy owner, or another individual?

B. Where an amount is paid as a benefit pursuant to the LTC plan described above is used by the individual to pay qualified medical expenses, will the expenses still be eligible for the medical expense tax credit?

Agency's Response:

Deductibility of Premiums Paid under LTC Plan as "medical expenses"

Two criteria must be satisfied in order for a payment for coverage under a LTC Plan to qualify as a medical expense under paragraph 118.2(2)(q).

First, the amount must be paid as a premium, contribution or other consideration to a private health services plan ("PHSP"), which is defined in subsection 248(1). Paragraph 4 of IT-339R2, Meaning of "Private Health Services Plan", explains that the coverage must be for hospital care or expense or medical care or expense which normally would otherwise have qualified as a medical expense under the Act in order for a plan to be a PHSP. Medical expenses - for the purposes of the medical expense credit - are described in subsection 118.2(2). Paragraphs 19 to 66 of IT-519R2, Medical Expense and Disability Tax Credits and Attendant Care Expense Deduction, set out the Department's general position regarding the expenses that qualify as medical expenses. For example, a plan that provides death benefits will not be a PHSP.

The second criteria is that the premiums must be paid for coverage of particular persons, namely, one or more of the individual, the individual's spouse, and any member of the individual's household with whom the individual is connected by blood relationship, marriage or adoption (except to the extent that the payment is deducted under subsection 20.01(1)). A plan would not be a PHSP where benefits may be paid to a person who is not one of the above persons. Thus, the provision of a death benefit to a designated beneficiary as described in the question would clearly disqualify the plan from being a PHSP.

Deductibility of Expenses where LTC Benefits Paid

Paragraph 118.2(3)(b) provides that qualifying medical expenses of an individual do not include any expense for which the individual or his or her spouse or dependant (as defined in the Act), or the legal representative of either such person has been, or is entitled to be, reimbursed except to the extent that the amount is required to be included in income and cannot be deducted in computing taxable income.

Therefore an amount paid by an individual will not be deductible as a medical expense to the extent that coverage for that expense is available under a LTC.

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