15 February 2007 External T.I. 2006-0217631E5 - PHSP Premium and RST, GST and Premium Tax

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 available deduction in respect of the premium paid to a private health services plan for purposes of the limit set out in paragraph 20.01(2)(c) of the Income Tax Act includes the applicable retail sales tax ("RST"), goods and services tax ("GST") and the premium tax.

Position:

Yes but subject the applicable dollar limit.

Reasons:

To the extent that payment of a premium to a PHSP, and its related taxes (RST, GST and Premium Tax), is required to be included in the income of an employee as a taxable benefit, the same basis may be utilized in computing the medical expense tax credit by virtue of paragraph 118.2(2)(q). By extension, it is our view that the premium paid to a PHSP, and its related taxes (RST, GST and Premium Tax), may be utilized in computing the deduction under section 20.01 subject to the applicable dollar limit.

									2006-021763
XXXXXXXXXX 								D. Tiu
(613) 957-8961
February 15, 2007

Dear XXXXXXXXXX:

Re: Private Health Services Plan Premium

We are writing in response to your letter of Oct 26th, 2006 on the above subject and further to our subsequent telephone discussions (XXXXXXXXXX/Tiu). You inquired whether the available deduction in respect of the premium paid to a private health services plan ("PHSP") for purposes of the limit set out in paragraph 20.01(2)(c) of the Income Tax Act (the "Act") includes the applicable retail sales tax ("RST"), goods and services tax ("GST") and the premium tax. You were also concerned about the apparent inequity in the legislation based on a taxpayer's province of residence.

The particular situation in your letter appears to relate to a factual one, involving one or more taxpayers. As explained in Information Circular 70-6R5, it is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an Advance Income Tax Ruling. Should your situation involve a specific taxpayer and a completed transaction, you should submit all relevant facts and documentation to the appropriate Tax Services Office for their views. However, we are prepared to provide the following general comments.

Section 20.01 allows individual business proprietors, and individuals carrying on a business through a partnership, to deduct premiums payable by the individual or partnership under a private health services plan in respect of the individual and family members living with the individual, within certain dollar limits as set out in subsection 20.01(2). For example, in a proprietorship business that employs no arms-length employee, paragraph 20.01(2)(c) limits the premium deductible for each full year of coverage to $1,500 for each of the individual, the individual's spouse and each member of the individual's household who are 18 years of age or over and $750 each for other members of the individual's household. The Canada Revenue Agency ("CRA") has taken the view that to the extent that payment of a premium to a PHSP, and its related taxes (RST, GST and Premium Tax), is required to be included in the income of an employee as a taxable benefit, the same basis may be utilized in computing the medical expense tax credit by virtue of paragraph 118.2(2)(q). By extension, it is our view that the premium paid to a PHSP, and its related taxes (RST, GST and Premium Tax), may be utilized in computing the deduction under section 20.01 subject to the applicable dollar limits.

Any premium paid to a PHSP by individual business proprietors and individuals carrying on a business through a partnership, including its related taxes (RST, GST and Premium Tax), to the extent they are not deducted under section 20.01, qualify as medical expenses for the medical expense tax credit by virtue of paragraph 118.2(2)(q).

We hope that our comments will be of assistance to you.

Yours truly,

Gwen Moore
Section Manager
For Division Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch