27 May 2002 External T.I. 2002-0129035 - PHSP 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 CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues

Are certain expenses not described under medical expenses under 118.2(2) allowed for those covered under a PHSP.

POSTION

NO, only medical expenses described under 118.2(2) are allowed.

Reasons

The definition of a PHSP under 248(1) refers to medical expenses that are in turn described in 118.2(2).

XXXXXXXXXX 2002-012903
C. Tremblay, CMA
May 27, 2002

Dear XXXXXXXXXX:

Re: Private Health Services Plan ("PHSP")

This is in response to your letter of March 5, 2002, requesting our opinion on whether the definition of a PHSP as defined in subsection 248(1) of the Income Tax Act (the "Act") is broad enough to permit coverage for expenses other than those specifically provided under subsection 118.2(2) of the Act.

The Canada Customs and Revenue Agency maintains that medical expenses paid by a PHSP must qualify for the medical expense tax credit. In general terms, we look to the definition of a "private health services plan" in subsection 248 (1) of the Act as the legal basis to support our position, that coverage can only be for hospital expenses, medical expenses or any combination thereof. It is our view that such expenses normally qualify as medical expenses under the provisions of subsection 118.2(2) of the Act in the determination of the medical expense tax credit. This position has been published in paragraph 4 of Interpretation Bulletin IT-339R2, Meaning of "Private Health Services Plan". If a particular plan provides coverage for expenses other than those described in subsection 118.2(2) of the Act, it is our view that the entire plan will not qualify as a PHSP. In such cases, the rules for "employee benefit plans" could apply. Employees are taxable on amounts paid out of an employee benefit plan. As well, an employer ordinarily may not deduct contributions for employees until they actually receive a corresponding benefit out of the plan. When an employer wishes to provide non-qualifying benefits, in addition to those that do qualify, we will allow the employer to establish a separate plan, thereby preserving the more favourable income tax treatment for reimbursements of qualifying medical expenses. Where it is not feasible to set up two separate plans, we are prepared to treat the plan as two separate plans, provided that the plan administrator accounts separately for the non-taxable and the taxable portions.

We confirm that we will only consider fees paid to social workers as "medical expenses", if the social workers:

(a) are working in a recognized mental health clinic, community agency or hospital,

(b) are members of the association governing their particular profession, and

(c) provide a treatment at the request of, or in association with, a medical practitioner.

As noted above, it is our view that where a plan provides coverage for ineligible medical expenses, i.e. expenses not listed under subsection 118.2(2) of the Act, the plan does not qualify as a PHSP. In fact, we will not give an advance income tax ruling on a proposed PHSP unless the facts specifically state that the benefits are restricted to medical expenses as defined by section 118.2 of the Act. Interpretation Bulletin IT-519R2 (Consolidated) describes the eligible medical expenses. Thus, it is our view that 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.

Yours truly,

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

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