20 December 2002 External T.I. 2002-0176135 - 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: Whether a draft plan would qualify as a PHSP

Position: Proposed transactions must be subject of an ATR-must meet conditions as set out in IT 339R2- including in the case of employer sponsored plan-must be in nature of insurance

XXXXXXXXXX 2002-017613
Lena Holloway, CA
December 20, 2002

Dear XXXXXXXXXX:

Re: Private Health Services Plan

We are writing in reply to your letter of November 18, 2002, wherein you requested our comments as to whether the document sent by you would be considered a private health services plan ("PHSP") under the Income Tax Act (the "Act"). While you were of the opinion that this plan would meet the necessary requirements of a PHSP you asked for our opinion on the tax treatment of the same.

Our mandate at the Income Tax Rulings Directorate is to provide advance income tax rulings and technical interpretations upon which our clients can rely. Therefore, we would be pleased to address any specific questions you may have regarding PHSPs, however, we cannot simply undertake to review documents without reference to any specific issue. We are, however, prepared to provide you with the following general comments.

The CCRA's Interpretation Bulletins, which are not themselves law, comment on our interpretation of income tax law. In particular, we would point out that under paragraph 4 of IT-339R2, the PHSP coverage must be for hospital care or expense or medical care or expense which normally would otherwise have qualified as a medical expense under subsection 118.2(2) of the Act. Further, as stated in paragraph 7 of IT-339R2, an arrangement where an employer is obligated to reimburse its employees for medical or hospital expenses may come within the definition of a PHSP where the employer is obligated by the employment contract to pay such expenses. The consideration given by the employee is considered to be the employee's covenants as found in the collective agreement or in the contract of service. However, in order for a plan or arrangement to qualify as a PHSP, it must be a plan of insurance and thus involve a reasonable element of risk which is assumed by the employer. If the plan or arrangement is such that it can be terminated at any time by the employer, without notice, at his sole discretion, there may be some doubt as to the level of risk undertaken and whether this would be in fact a plan of insurance.

We caution that the above comments are general only, and do not constitute an advance income tax ruling. Whether or not the draft plan submitted with your letter would qualify as a PHSP could only be determined upon a review of all of the facts, and in particular after an examination of all pertinent documentation relating to the employment contracts of those to be covered.

We trust the above comments are of assistance.

Yours truly,

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

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