2007 Ruling 2006-0198221R3 - Definition of 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.

Principal Issues: Given a statement of fact that a particular health care plan qualifies as a private health services plan, will the addition of a new group of employees to the plan taint that qualification?

Position: We are not ruling on whether the existing plan is a private health services plan. However, based on the statement of fact that it so qualifies, the addition of the new group of employees will not, in and of itself, cause the plan to cease to qualify.

Reasons: Our reading of the legislation and consistent with our positions in IT-339R2.

XXXXXXXXXX
2006-019822

XXXXXXXXXX , 2007

Dear XXXXXXXXXX :

Re: XXXXXXXXXX (the "Trust")
XXXXXXXXXX, as trustees of the Trust
Advance Income Tax Ruling

This is in reply to your letter dated XXXXXXXXXX, in which you requested an advance income tax ruling on behalf of the above noted taxpayers. We also acknowledge the additional information provided to us in your numerous letters, electronic mail transmissions, and telephone conversations (XXXXXXXXXX).

We understand that to the best of your knowledge and that of the taxpayers involved, none of the issues described herein is:

(a) in an earlier return of the taxpayers or a related person;

(b) being considered by a tax services office or taxation centre in connection with a previously filed tax return of the taxpayers or a related person;

(c) the subject of any notice of objection;

(d) before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired; or

(e) the subject of a previously issued ruling. Unless otherwise stated, all references to a statute are to the Income Tax Act, R.S.C. 1985 (5th Supplement), c.1, as amended, (the "Act") and all terms and conditions used herein that are defined in the Act have the meaning given in such definition unless otherwise indicated.

Our understanding of the facts, proposed transactions and the purpose of the proposed transactions is as follows:

DEFINITIONS

In this letter, unless otherwise expressly stated:

"Administrator" means the agency, firm or corporation, which the Trustees appoint for the administration of the Benefits Program. Presently the Administrator is XXXXXXXXXX;

"Benefits Fund" means the funds contributed by the Province and administered by the Society for the purpose of compensating the members of the Society with a variety of health, dental and other benefit programs. The vast majority of these funds is made available by the Society to the Trustees to be added to the Trust Fund in order for the Trustees to administer the Plan in accordance with the terms of the Trust. A small percentage of these funds are retained and used by the Society, outside of the Plan, to provide maternity and parental leave, bursaries, counseling services and website access;

"Benefits Program" means an extended health and dental program that has been developed and instituted for the benefit of the members of the Society who meet the eligibility requirements and are approved for coverage. Although any number of health insurance plans can form part of this broader Benefits Program, presently the only health insurance plan in the Benefits Program is the Plan. It is only the Plan and not any other plan under the Benefits Program that is the subject of this ruling;

XXXXXXXXXX;

"Board of Directors" means the Board of Directors of the Society;

"Contributions" has the meaning ascribed in Paragraph 4;

"CRA" means the Canada Revenue Agency;

"Eligible Dependents" means those persons who, in addition to the Subscribing Member, or the Employee, as the case may be, are, or will also be, entitled to health and dental benefits under the Plan. Generally, Eligible Dependents means the Subscribing Member's or the Employee's spouse or common-law partner and children. In any case, Eligible Dependents will not include anyone other than those persons that would be included in the following wording from paragraph 118.2(2)(q) of the Act:

"the individual's spouse or common-law partner and any member of the individual's household with whom the individual is connected by blood relationship, marriage, common-law partnership or adoption";

"Employees" means individuals employed by, or who hold an office in and receive their officer's remuneration from, the Society and who meet the eligibility requirements and are approved for coverage under the Plan by the Trustees. Any one of the Employees is referred to as "Employee". None of the Employees are Subscribing Members or are employed by Subscribing Members;

"Paragraph" refers to a numbered paragraph in this letter;

"Plan" means the existing health and dental insurance plan referred to in Appendix B of your ruling request. The Plan emanated from the Benefits Program and is intended to qualify as a Private Health Services Plan;

"Private Health Services Plan" has the meaning as defined in subsection 248(1) of the Act;

"Province" means the Province of XXXXXXXXXX;

"Society" means XXXXXXXXXX;

"Subscribing Members" means individuals who are members of the Society who meet the eligibility requirements and are approved for coverage under the Plan by the Trustees. Any one is referred to as "Subscribing Member". None of the Subscribing Members are Employees of the Society;

"Trust" means the XXXXXXXXXX, as described in Paragraphs 1 and 2;

"Trustee" or "Trustees" shall mean any person or persons appointed as a Trustee of the Trust, pursuant to the terms of the Trust; and

"Trust Fund" means the trust fund established and administered in accordance with the "Declaration of Trust" which created the Trust.

FACTS

1. The Trust was established by the Society on XXXXXXXXXX, with the Declaration of Trust. The primary purpose of the Trust is to provide medical and dental benefits to the Subscribing Members and their Eligible Dependents. The Trust is an inter vivos trust within the meaning of subsection 248(1) of the Act. It's fiscal period ends on XXXXXXXXXX.

2. The Trust is registered with CRA as Trust Account Number XXXXXXXXXX. Its address is XXXXXXXXXX. The Trust files its returns at the XXXXXXXXXX.

3. The Plan is a pay-direct administration services only plan administered by the Administrator. The eligible health and dental expenses incurred by the Subscribing Members and their Eligible Dependents are billed by the Administrator directly to the Trust Fund and are paid to the Administrator out of the Trust Fund.

4. The Trust Fund is primarily funded out of substantially all of the money in the Benefits Fund, which was received by the Society from the Province. The Society deposits this money into the Trust Fund as "Contributions" on behalf of the participants in the Plan.

5. Depending on the claims experience of the Plan, the Subscribing Members may be required to make additional Contributions directly to the Trust Fund for the benefit of all participants in the Plan.

6. The administration of the Trust Fund by the Trustees is arms length from the Society. The only authority retained by the Board of Directors concerning the Benefits Program is ultimate approval of the specific terms of any plan of health insurance recommended by the Trustees. The terms of the trust empower the Trustees to:

(a) pay all reasonable and necessary expenses in connection with the Trust Fund and the Benefits Program;

(b) enter into contracts with insurance companies and pay or provide for the payment of any funds required to provide the benefits under the Benefit Program that is administered by the Trust;

(c) recommend to the Board of Directors the establishment of all health plans to be included in the Benefits Program;

(d) supervise, interpret and construe any health plan and determine all questions of eligibility for coverage under any plan and change or modify the eligibility rules from time to time;

(e) decide all questions or controversies arising in connection with Trust Fund or the operation thereof, whether as to any claim for benefits by a Subscribing Member or any other individual, or as to the construction of the language or meaning of the Benefits Program;

(f) receive contributions or payments from any source whatsoever to the extent permitted by law and also directly from the Subscribing Members in such circumstances as the Trustees consider appropriate and proper, including such circumstances where "pay-direct" or "self-pay" contributions are considered appropriate and proper;

(g) exercise full authority to determine the nature, amount and duration of benefits to be provided pursuant to the Benefits Program;

(h) exercise full authority to establish and determine eligibility requirements for benefits to be provided pursuant to any plan and to adopt rules and regulations;

(i) provide and maintain health benefits under the Benefits Program by such means as the Trustees shall in their sole discretion determine;

(j) make determinations, which shall be final and binding upon all persons as to the rights of any Subscribing Member and any dependent to benefits, including any rights any individual may have to request a hearing with respect to such determination;

(k) appoint and remove from time to time an Administrator and such committees as the Trustees may deem necessary to assist in the handling of the management of the Benefits Program and any plan;

(l) make such other rules and regulations as may be necessary for the administration of any plan and not inconsistent with the purpose of the Trust Fund; and

(m) provide assistance and information to the auditor of the Trust Fund as may be reasonably required for the completion of each audit annually.

7. The existing "Trust Agreement", created by the Declaration of Trust, and the eligibility provisions of the current Benefits Program, enable Subscribing Members and their Eligible Dependents, to participate in the Benefits Program and the Plan. Subscribing Members carry on their respective professional practices either as self-employed professionals, partners in professional partnerships or self-incorporated professional practices.

PROPOSED TRANSACTIONS

8. The Trust Agreement and the eligibility provisions of the Benefits Program (including the Plan) will be amended to enable Employees and their Eligible Dependents to participate in the Plan. The Trustees will set the amounts to be paid by Employees to the Trust Fund as consideration for their ongoing participation in the Plan. Health and dental benefit coverage under the Plan for Employees and their Eligible Dependents will be the same as those offered to Subscribing Members and their Eligible Dependents.

9. The Trust Agreement will also be amended to provide that, depending on the claims experience of the Plan, together (i.e., not one group without the other) the Subscribing Members and Employees who participate in the Plan may be required to rateably share in the cost of the health and dental insurance coverage under the Plan by paying premiums as "Additional Contributions" directly to the Trust Fund. All such Additional Contributions would be for the benefit of all participants in the Plan.

10. The employment agreement between the Society and any Employee who will participate in the Plan will require the Society to reimburse the Administrator for payments made under the Plan for proper claims filed by the Employee.

PURPOSE OF THE PROPOSED TRANSACTIONS

11. The proposed transactions would allow the Society to improve its employment package in order to attract new and retain current employees and by so doing, help ensure greater stability and continuity in its operation.

RULINGS

Provided that:

(a) the Plan meets the definition of a "private health services plan" in subsection 248(1) of the Act,

(b) the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions and the purpose of the proposed transactions,

(c) the proposed transactions are completed in the manner described above, and

(d) there are no other transactions which may be relevant to the rulings requested,

our rulings are as follows:

A. The amendments to the existing Trust Agreement and the eligibility provisions of the Plan, as described in Paragraphs 8 and 9, will not, in and of themselves, cause the Plan to cease to be a Private Health Services Plan.

B. Contributions paid by the Society into the Trust Fund in respect of the health and dental benefit coverage for Employees, as contemplated in Paragraphs 4 and 8, and payments made out of the Trust Fund to the Administrator for health and dental expenses incurred and claimed by an Employee, as described in Paragraph 10, will not be included in computing the income of the Employee, pursuant to subparagraph 6(1)(a)(i) of the Act.

C. Additional Contributions, if any, paid directly by an Employee to the Trust Fund, as described in Paragraph 9, would be a medical expense of the Employee, pursuant to paragraph 118.2(2)(q) of the Act.

These rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R5 issued by the CRA on May 17, 2002, and are binding on the CRA provided that the proposed transactions are implemented on or before XXXXXXXXXX. These rulings are based on the Act in its present form and do not take into account any proposed amendments to the Act which, if enacted, could have an effect on the rulings provided herein.

Except as expressly stated, our rulings do not imply acceptance, approval or confirmation of any income tax implications of the facts or proposed transactions. In particular, nothing in this letter should be interpreted as confirming, either expressly or implicitly that the CRA has agreed or accepted that the Plan meets the definition of a private health services plan in subsection 248(1) of the Act.

Yours truly,

XXXXXXXXXX
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch