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: Whether the XXXXXXXXXX as drafted would meet the definition of a Private Health Services Plan ("PHSP") in subsection 248(1) of the Income Tax Act ("Act")
Position: General comments provided.
Reasons: IT-85R2
D Tiu
XXXXXXXXXX (613) 957-8961
2006-018282
June 9, 2006
Dear XXXXXXXXXX:
Re: XXXXXXXXXX
We are writing in response to your May 16, 2006 inquiry on the above subject and further to our subsequent telephone discussions (XXXXXXXXXX/Tiu). You inquired whether the XXXXXXXXXX ("the Program") as drafted would meet the definition of a Private Health Services Plan ("PHSP") in subsection 248(1) of the Income Tax Act ("Act").
Written confirmation of the tax consequences inherent in a particular transaction or series of transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R5. In any event, a request cannot be considered for a ruling when the transactions are completed or where the issues involved are primarily questions of fact. Notwithstanding the foregoing, we are prepared to provide the following general comments.
Health and welfare benefits for employees are sometimes provided through a trust arrangement under which the trustees receive the contributions from the employer(s), and in some cases from employees, to provide such health and welfare benefits as have been agreed to between the employer and the employees. If the benefit program adopted is limited to a group sickness or accident plan, a PHSP, a group term life insurance policy, or any combination of the foregoing, and if the arrangement meets certain conditions, then the trust arrangement is a health and welfare trust as described in our interpretation bulletin IT-85R2, "Health and Welfare Trusts for Employees".
To qualify for treatment as a health and welfare trust, the payments by the employer cannot be made on a voluntary or gratuitous basis. They must be enforceable by the trustees should the employer decide not to make the payments required. It is not clear to us, from the two documents provided, that the Program satisfies this requirement.
A PHSP qualifying under the definition in subsection 248(1) is a plan in the nature of insurance. In this respect the plan must contain the following basic elements:
(a) an undertaking by one person,
(b) to indemnify another person,
(c) for an agreed consideration,
(d) from a loss or liability in respect of an event,
(e) the happening of which is uncertain.
Coverage under the PHSP must be in respect of hospital care or expense or medical care or expense which normally would otherwise have qualified as a medical expense under the provisions of subsection 118.2(2) in the determination of the medical expense tax credit.
Although the Program appears to be a plan in the nature of insurance, we have some concerns about the inclusion in the list of eligible expenses of "non-prescription drugs and supplies required as a result of a colostomy, ileostomy, or treatment of diabetes".
We note that, pursuant to paragraph 118.2(2)(i) of the Act, the cost of colostomy and ileostomy pads is a qualifying medical expense. Paragraph 40 of IT-519R2, "Medical Expense and Disability Tax Credits and Attendant Care Expense Deduction" confirms that this would include the cost of pouches and adhesives used for the same purpose. Also, pursuant to paragraph 118.2(2)(i.1), the cost of diapers, disposable briefs, catheters, catheter trays, tubing or other products required by the patient because of incontinence caused by illness, injury or affliction is a qualifying medical expense.
We also note that, pursuant to paragraph 118.2(2)(n) of the Act, the cost of any device that is of a prescribed kind, and prescribed by a medical practitioner for use by the patient is a qualifying medical expense. Pursuant to paragraph 5700(s) of the Income Tax Regulations, an infusion pump, including disposable peripherals, used in the treatment of diabetes or a device designed to enable a diabetic to measure the diabetic's blood sugar level is a device of a prescribed kind. In our view, this includes a reasonable supply of lancets and batteries used with a device designed to measure the diabetic's blood sugar level.
It is not clear to us that the cost of "non-prescription drugs and supplies required as a result of a colostomy, ileostomy, or treatment of diabetes" referred to in the Program documents would be limited to such qualifying expenses.
While we hope that our comments will be of assistance to you, they are given in accordance with the practice referred to in paragraph 22 of IC 70-6R5 and are not binding on the Agency in respect of any particular situation.
Yours truly,
Robin Maley
Section Manager
For Division Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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