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. Whether or not the cost of the premiums is deductible to the corporation. 2. Whether or not the cost of the premiums is a taxable benefit for the three employees enrolled in the different plans.
Position: 1. Yes, the cost of the premiums is deductible to the corporation. 2. No, the premiums are not a taxable benefit for the employees in any of the plans.
Reasons: 1. The PHSPs are part of a reasonable coverage package for its employees, therefore, the cost of the premiums is a deductible expense of the corporation which is not prohibited by paragraph 18(1)(a). 2. The premiums are excluded from employment income under subparagraph 6(1)(a)(i).
XXXXXXXXXX 2005-016067
Kathryn McCarthy, CA
January 27, 2006
Dear XXXXXXXXXX:
Re: Private Health Services Plans
We are writing in response to your letter of May 4, 2005, concerning the above-noted issue. We apologize for the delay in our response.
You described a situation where a corporation has an employee benefit plan for health and dental coverage. Not all of the corporation's 10 employees have been offered coverage. Prior to 2005, three employees (including families) were enrolled in the one plan, "Plan 1", as follows:
? the "Employee/Shareholder" and spouse;
? the "Employee/Shareholder's Son" and spouse; and
? the "Employee" who is a long-term employee and unrelated to the Shareholders.
The only individual that continues to be covered under Plan 1 is the Employee/Shareholder's Son. In 2005, the corporation purchased a second health and dental care plan for the Employee, "Plan 2". Also, the Employee/Shareholder has purchased a third health and dental plan, "Plan 3", that will be in her name, the cost of which will be reimbursed by the corporation.
You inquired whether the cost of the premiums for Plan 1 ($1,600 annually) and Plan 2 ($1,200 annually) and the reimbursement for Plan 3 ($1,100 annually) is deductible to the corporation and taxable as employment benefits under the Income Tax Act (the Act).
On the basis that the plans described are private health services plans, we are of the view that there is no taxable benefit by virtue of subparagraph 6(1)(a)(i) of the Act and that the amount is a deductible expense of the corporation which is not prohibited by paragraph 18(1)(a) of the Act.
We trust our comments will be of assistance to you.
Yours truly,
Randy Hewlett
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch
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