18 December 2002 External T.I. 2002-0166365 - PHSP'S FOR SOLE PROPRIETORS

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: Private health services plans for sole proprietors.

Position: General comments.

Reasons: General enquiry.

XXXXXXXXXX
2002-016636
J. Gibbons, CGA
December 18, 2002

Dear XXXXXXXXXX:

Re: Health Care Plans for Small Businesses

We are replying to your letter, which we received on September 26, 2002, concerning health care plans in respect of small businesses. Your enquiry relates to a statement made by a representative of a private heath services plan ("PHSP") company that legislation passed two years ago allows business owners to deduct the health and dental expenses that they pay for themselves, their families and their employees.

Please note that 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.

Our Comments

We assume that your enquiry relates to the introduction of section 20.01 of the Income Tax Act (the "Act"), which is effective for amounts payable after 1997. Under section 20.01, a sole proprietor may deduct, in computing income from business, the cost of PHSP coverage for the sole proprietor and his or her family members. However, certain limits and restrictions apply. These limits and restrictions are outlined on pages 21 through 23 of the 2000 Business and Professional Income Guide, which can be obtained on our website at www.ccra-adrc.gc.ca.

You should also note that we do not consider "cost plus" plans to be PHSPs unless the plan provides coverage for employees as well as the sole proprietor. Generally, under a cost-plus plan, a sole-proprietor contracts with an administrator to cover the costs for claims on defined risks under the plan and in return the sole proprietor reimburses the administrator for the cost of any claims plus an administration fee.

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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