27 August 2004 External T.I. 2004-0079241E5 - Health spending account

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: Is there an income tax legislative or administrative directive that requires a claim in respect of health benefits for a spouse first be submitted to the spouse's medical insurance plan for reimbursement before an individual can make a claim from his or her health spending account?

Position: No.

Reasons: A health spending account is generally governed by the terms under which the plan has been established.

Bob Naufal, CMA
XXXXXXXXXX (613) 957-2744
2004-007924
August 27, 2004

Dear XXXXXXXXXX:

Re: Health spending account

We are writing in response to your letter of May 26, 2004, wherein you asked us if there is an income tax legislative or administrative directive that requires a claim in respect of health benefits for your spouse to first be submitted to your spouse's medical insurance plan for reimbursement before you can make a claim from your health spending account ("HSA").

Our Comments

Generally, an HSA is comprised of individual employee accounts that provide for the reimbursement of eligible medical and dental expenses. In this regard, an HSA is normally set up as a secondary health care plan used to supplement an employer's regular medical / dental insurance plan and typically contains a pre-determined ceiling in respect of amounts to be reimbursed. Depending on the terms governing the plan, an HSA may also be used to supplement a spousal medical / dental insurance plan, whereby the HSA is used to reimburse eligible medical / dental expenses that are not reimbursed under a spouse's medical / dental insurance plan.

From an income tax perspective, benefits received under an HSA may be non-taxable provided the HSA qualifies as a "private health services plan" ("PHSP"). A PHSP is generally defined as a contract of insurance in respect of hospital expenses, medical expenses or any combination of such expenses, or a medical care insurance plan or hospital care insurance plan or any combination of such plans. To qualify as a PHSP, coverage under such a plan must be limited to medical expenses that would otherwise qualify for the medical expense tax credit pursuant to subsection 118.2(2) of the Income Tax Act (the "Act"). Further information on medical expenses can be found in Interpretation Bulletin IT-519R2, Medical Expense and Disability Tax Credits and Attendant Care Expense Deduction, available on our web site at www.cra-arc.gc.ca.

While an HSA must meet certain income tax criteria as described above, there is no requirement, from an income tax legislative standpoint, that a claim in respect of health benefits for your spouse must first be submitted to your spouse's medical insurance plan prior to reimbursement from your HSA. The administration of an HSA is typically governed by the terms of the plan by which it was established. In this regard, the terms of the HSA plan would likely specify whether an eligible employee will be able to request a reimbursement of eligible medical expenses incurred by the employee, the employee's spouse, or any member of the employee's household with whom the employee is connected by blood relationship, marriage or adoption.

The foregoing comments represent our general views with respect to the subject matter. As indicated in paragraph 22 of Information Circular 70-6R5, the above comments do not constitute an income tax ruling and accordingly are not binding on the CCRA. Our practice is to make this disclaimer in all instances in which we provide an opinion.

We trust our comments will be of some assistance.

Yours truly,

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