12 July 2001 Internal T.I. 2001-0082757 - PREMIUM-MEDICAL EXPENSE

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.Does a premium paid to an insurer towards a long-term care plan qualify as a medical expense under 118.2(2)(q)?

2.Would any portion of the amounts received under the plan be taxable if (i) it is fully funded by the individual and (ii) if the employer contributes ?

Position TAKEN:

1. YES.

2. No Portion is taxable

Reasons FOR POSITION TAKEN:

1. Plan appears to be PHSP and premiums would qualify under 118.2(2)(q) - all expenses covered are under 118.2

2 (i) If fully funded by individual, benefits are not taxable (ii) if the employer contributes and the plan qualifies as PHSP (a question of fact), benefits are not taxable.

		July 12, 2001

	CHARLOTTETOWN TSO	HEADQUARTERS
	Client services 1-16	C. Tremblay, CMA
		957-2139
	Attention: Sharon Bulger
		2001-008275

XXXXXXXXXX

This is in response to your memorandum of April 27, 2001, requesting our opinion on whether the premiums paid under a XXXXXXXXXX (the "Plan") can be considered medical expenses pursuant to paragraph 118.2(2)(q) of the Income Tax Act (the "Act"). You also asked whether any portion of the amounts received from the Plan would be taxable if (a) the Plan is fully funded by the individual and (b) the employer contributes to the Plan. You enclosed a copy of the Plan.

The determination of whether a plan of insurance qualifies as a "private health services plan" (PHSP) which is defined in subsection 248(1) of the Act, is a question of fact. The CCRA has set out its views on the issue in Interpretation Bulletin IT-339R2, "Meaning of Private Health Services Plan."

Paragraph 4 of IT-339R2 states that coverage under a PHSP must be in respect of hospital care or expense or medical care or expense which normally would otherwise have qualified as a medical expense (for purposes of the medical expense tax credit) under subsection 118.2(2) of the Act. As a result, a plan that provides coverage for ineligible medical expenses, i.e. expenses not listed under subsection 118.2(2) of the Act, will not qualify as a PHSP. (IT-519R2 describes the eligible medical expenses). Thus, it should be clear from the plan documentation that particular expenses for which a plan provides coverage are described under subsection 118.2(2) of the Act. Although the expenses were described differently than similar medical expenses described under subsection 118.2(2) of the Act, from our review of the Plan, the Plan provides specific coverage for certain medical expenses as described under paragraphs 118.2(2)(b), (b.1), (b.2), (c), (d), (e), (i), (l.2), (l.8), (l.9), and (m) of the Act. Accordingly, in our view, the premiums for the Plan would qualify as a medical expense under paragraph 118.2(2)(q) of the Act.

In answer to your second question, any benefits received from the Plan would not be taxable regardless of whether the employer contributes to the Plan or whether the Plan is fully funded by the individual employees.

For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Legislation Access Database (LAD) on CCRA's mainframe computer. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the LAD version, or they may request a copy severed using the Privacy Act criteria, which does not remove client identity. You should make request for this latter version to Jackie Page at (819) 994-2898. The severed copy will be sent to you for delivery to the client.

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

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