16 May 2001 External T.I. 2001-0080065 - AUTISM; THERAPY; TUTORING; 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 therapy and tutoring services are medical expenses.

2. Whether can forego taxable salary in exchange for promise to pay medical expenses and not pay tax on salary foregone

Position:

1. If provisions of Act are satisfied.

2. Depends on facts

Reasons:

1. Paragraph 118.2 (l.9) and (l.91) of the Act.

2. constructive receipt if you forego salary that you are entitled to; if your salary is decreased on renegotiation of employment contract, there is no constructive receipt

		2001-008006
XXXXXXXXXX 	Denise Dalphy LL.B.
(613) 957-9231
May 24, 2001

Dear XXXXXXXXXX:

Re: Remuneration for Therapy And Tutoring Services for Autistic Children

This is in reply to your facsimile transmissions of April 12, 2001 to Ms. Brownsword of the Vancouver Island Tax Services Office.

Written confirmation of the consequences inherent in particular transactions are given by this directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R4. If, however, the particular transactions are partially completed or completed, the enquiry should be addressed to the relevant Tax Services Office. Notwithstanding the foregoing, we are providing the following comments.

The Act now provides that for the 1999 and subsequent taxation years certain amounts paid for therapy and tutoring will qualify as medical expenses under the Income Tax Act (the "Act").

New paragraph 118.2(2)(l.9) of the Act describes what payments for therapy will qualify:

1. The amount must be paid as remuneration for therapy;

2. The therapy must be provided to the patient because of the patient's severe and prolonged impairment in respect of which the patient qualifies for the disability tax credit in under section 118.3 for the taxation year in which the remuneration is paid;

3. The therapy must be prescribed by, and administered under the general supervision of,

(A) a medical doctor or a psychologist, in the case of mental impairment and

(B) a medical doctor or an occupational therapist, in the case of a physical impairment;

4. At the time the remuneration is paid, the payee is neither the individual's spouse nor an individual who is under 18 years of age; and

5. Each receipt filed with the Minister to prove payment of the remuneration was issued by the payee and contains, where the payee is an individual, that individual's Social Insurance Number.

New paragraph 118.2(2)(l.91) of the Act describes what payments for tutoring services will qualify:

1. The amount must be paid as remuneration for tutoring services;

2. The tutoring services must be rendered to, and be supplementary to the primary education of, the patient who

(A) has a learning disability or a mental impairment, and

(B) has been certified in writing by a medical practitioner to be a person who, because of that disability or impairment, requires those services [Note: The Act defines a "medical practitioner" in subsection 118.4(2). In general terms, the provision states that a "medical practitioner" is a person who is authorized by legislation in the jurisdiction in which the services are rendered to practice as a medical practitioner.]; and

3. The payment must have been made to a person ordinarily engaged in the business of providing such services to individuals who are not related to the payee.

Whether a particular therapy or tutoring service for an autistic person will qualify is a mixed question of fact and law in respect of which we would have to be provided with all relevant facts to make a determination. Further, with respect to amounts paid as remuneration for therapy, it may be necessary for the Canada Customs and Revenue Agency to consult with Health Canada in order to determine whether a particular person with autism has a severe and prolonged impairment in respect of which he or she qualifies for the disability tax credit under section 118.3 of the Act, and whether the therapy is in respect of that impairment.

Conversion of Salary to Premiums to a Private Medical Health Plan

You have enquired whether a person who "self-funds a private medical plan" would result in a person having a gross salary that is lower in an amount equal to the premiums paid into the private medical plan than the gross salary to which the person was entitled.

You have also asked about the income tax consequences of the following situation:

An employee has been earning gross income of $4,000 per month. He "has his employer pay" $1,000 per month to a private medical plan.

Whether a decrease in an employee's salary, as part of the amended employment arrangement, has income tax consequences depends on the employee's legal entitlements under the contract of employment. When a contract of employment is renegotiated to incorporate a decrease in the level of salary or wages to be paid to the employee over the term of the contract, the amount of the decrease, regardless of size, will not have tax consequences. A corresponding or coincident increase in the amount of premiums paid by the employer in respect of a private health services plan (a "PHSP"), which is defined in subsection 248(1) of the Act and explained in Interpretation Bulletin IT-339R2, will not be treated as a taxable benefit to the employee and added to the decreased salary. However, if an employee has a legal entitlement, pursuant to the terms of a valid employment contract, to a certain level of salary which is taxable as income from employment, the diversion of a portion of the salary towards the payment of premiums in respect of a PHSP will not serve to reduce the amount of salary that is subject to tax. In such circumstances, the amounts withheld from income by the employer and used to cover the premium obligations will not be considered as employer contributions, but rather as after-tax employee contributions. If the previous contract of employment is only verbal, the onus will be on the employer to satisfy the Canada Customs and Revenue Agency (the "CCRA"), when queried, that a valid renegotiated employment agreement is in place.

The foregoing comments represent our general views with respect to the subject matter. As indicated in paragraph 22 of Information Circular 70-6R4, the above comments do not constitute an income tax ruling and accordingly are not binding on the CCRA. Our practice is to make this specific disclaimer in all instances in which we provide an opinion.

Yours truly,

Steve Tevlin
for Director
Business and Partnerships Division
Income Tax Rulings Directorate

c.c. Ms Margaret Brownsword
Vancouver Island TSO
Client Services

- 4 -