20 December 2002 External T.I. 2002-0158495 - PRIVATE HEALTH SERVICES PLAN

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: (i) Is a sole proprietor's contribution to a cost-plus health plan deductible in calculating business income for income tax purposes if the sole proprietor has no employees? (ii) Are the costs of herbs and vitamins, as recommended and purchased from a Naturopath, reimbursable under a PHSP?

Position: (i) no. (ii) no.

Reasons: (i) Not a private health services plan. (ii) Not recorded by a pharmacist.

XXXXXXXXXX 2002-015849
J. Gibbons, CGA
December 20, 2002

Dear XXXXXXXXXX:

We are replying to your letter dated August 12, 2002, in which you enquired about "cost-plus" health plans for sole proprietors and the type of expenses that may be reimbursed by a private health services plan ("PHSP"). In particular, you asked us the following questions:

(a) Is a sole proprietor's contribution to a cost-plus health plan deductible in calculating business income for income tax purposes if the sole proprietor has no employees?

(b) Are the costs of herbs and vitamins, as recommended and purchased from a Naturopath, reimbursable under a PHSP?

Our comments are of a general nature only since we cannot confirm the tax implications of particular transactions unless the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular IC 70-6R5.

Sole Proprietor PHSP

A sole proprietor may deduct the fees paid to a cost plus health plan in calculating business income only if the particular plan qualifies as a PHSP, as defined in subsection 248(1) of the Income Tax Act (the "Act"), and the conditions in section 20.01 of the Act are met.

Since a plan of insurance must include an undertaking by one person to insure another person (i.e., an employee), it is our view that a cost-plus plan that provides coverage solely for a proprietor and family members who are not employees will not qualify as a PHSP. The Department of Finance is currently reviewing this requirement to determine if a legislative amendment is advisable.

Drugs and Other Substances Covered by a PHSP

A PHSP may cover those medical expenses described in subsection 118.2(2) of the Act that would otherwise qualify for the medical expense tax credit (see paragraph 4 of Interpretation Bulletin IT-339R2, Meaning of "private health services plan"). Paragraph 118.2(2)(n) of the Act describes drugs, medicaments or other preparations or substances (hereinafter referred to as "drugs") that are manufactured, sold or represented for use in the diagnosis, treatment or prevention of a disease, disorder, abnormal physical state, or the symptoms thereof or in restoring, correcting or modifying an organic function. To qualify as a medical expense, the particular substance must be purchased for use by the patient as prescribed by a medical practitioner or dentist and recorded by a pharmacist.

In our view, the cost of an over-the-counter drug may qualify as a medical expense under paragraph 118.2(2)(n) of the Act provided that the drug was prescribed by a medical practitioner and recorded by a pharmacist. A naturopath may qualify as a medical practitioner if he/she is authorized to practice as such under the relevant provincial or territorial laws of the particular jurisdiction where the patient resides. Moreover, it is our view that "recorded by a pharmacist" means that a licensed pharmacist must dispense the drug and record the prescription in a prescription record as required by the relevant provincial or territorial law. Further information with respect to medical practitioners and drugs as qualifying medical expenses can be found in Interpretation Bulletin IT-519R2 (Consolidated), Medical Expense and Disability Tax Credits and Attendant Care Expense Deduction.

You may find copies of Interpretation Bulletins IT-339R2 and IT-519R2 on the CCRA's website, which is located at www.ccra-adrc.gc.ca. Also, an unofficial version of the Act is available at http://laws.justice.gc.ca/en/I-3.3/index.html.

We trust that these comments will be of assistance.

Yours truly,

Daryl Boychuk, LL.B
for Director
Business and Partnerships Division
Income Tax Rulings Directorate

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