5 March 2004 External T.I. 2003-0048461E5 - Long Term Personal Care Insurance Products

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.

Principal Issues:

1.Is a premium paid to an insurer for coverage under a long-term care insurance plan a medical expense?

2.Are amounts received from the plan taxable?

Position:

1. Question of fact.

2.Receipts from the plan are generally not taxable.

Reasons:

1. Depends if requirements of 118.2(2)(q) are met.

2. Payments are not normally taxable to the recipient.

2003-004846
XXXXXXXXXX Lena Holloway
(613) 957-2104
March 5, 2004

Dear XXXXXXXXXX:

Re: Long Term Care Personal Insurance Products

We are writing in response to your letter dated July 15, 2003, wherein you asked us to confirm a representation made by another taxpayer. The confidentiality provisions of the Income Tax Act (the "Act") expressly prohibits any official of the Canada Revenue Agency ("CRA") from releasing to any person any information related to a specific taxpayer, unless the taxpayer specifically authorizes it. As your letter concerns another taxpayer, we cannot discuss any specific information related to that taxpayer. We can however offer the following general comments on the topic of Long Term Care Personal Insurance Products ("LTC Plans") that may be of assistance to you.

Our Comments

Deductibility of Premiums Paid under LTC Plan as "medical expenses"

Premiums paid for coverage under a LTC Plan may qualify as medical expenses under paragraph 118.2(2)(q) of the Act if the following two criteria are met.

First, the amount must be paid as a premium, contribution or other consideration to a private health services plan ("PHSP"), which is defined in subsection 248(1) of the Act. Paragraph 4 of Interpretation Bulletin IT-339R2, Meaning of "Private Health Services Plan", explains that, in order for a plan to be a PHSP, coverage must be limited to hospital care or expenses or medical care or expenses which normally would otherwise have qualified as a medical expense under the Act. Medical expenses, for the purposes of the medical expense credit, are described in subsection 118.2(2) of the Act. Paragraphs 19 to 66 of IT-519R2, Medical Expense and Disability Tax Credits and Attendant Care Expense Deduction, set out the CRA's general position regarding the expenses that qualify as medical expenses. Therefore, a plan that provides for benefits in addition to the payment of medical expenses would not meet the definition of a PHSP. For example, a plan that provides for the payment of death benefits or an income amount as opposed to a reimbursement of medical expenses would not be a PHSP
Secondly, the premiums must be paid for coverage of the individual, the individual's spouse, and any member of the individual's household with whom the individual is connected by blood relationship, marriage or adoption (except to the extent that the payment is deducted under subsection 20.01(1)). A plan would not be a PHSP where benefits may be paid to a person who is not one of the above persons.

Taxability of LTC Benefits Paid

Benefits received from a LTC Plan would not be subject to tax where the individual paid all of the required premiums. Similarly, where a LTC Plan is a PHSP, as discussed above, benefits would not be taxable even if funded in whole or in part by the individual's employer.

We cannot provide more definitive comments without reviewing all of the facts and documentation related to a specific LTC Plan. Such a review would only be undertaken in the context of an advance income tax ruling request, where the transactions were proposed.

We trust our comments will be of assistance to you but should you wish to discuss these matters further, do not hesitate to contact us. Copies of IT-339R2 and IT-519R2 can be found on our website for your reference (www.ccra-adrc.gc.ca)

Yours truly,

Wayne Antle, CGA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch