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 employer paid premiums for the health and medical plan, on behalf of their employee, are excluded from the employee’s income.
Position: Question of fact.
Reasons: See response.
December 12, 2018
Re: Private Health Services Plan
We are writing in response to your correspondence of July 18, 2017, in which you asked whether premiums paid by an employer, for the health and medical plan, are a taxable benefit to the employee. We apologize for our delayed response.
This technical interpretation provides general comments about the provisions of the Income Tax Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R7, Advance Income Tax Rulings and Technical Interpretations.
Employment benefits, whether provided in cash or in-kind, are generally included in an employee’s income under paragraph 6(1)(a) of the Act. However, there are a number of exceptions in the Act, such as where the employer provides health benefits to its employees through a private health services plan (PHSP). Specifically, subparagraph 6(1)(a)(i) of the Act provides that benefits, “derived from the contributions of the taxpayer’s employer to or under . . . a private health services plan” are excluded from an employee’s income.
A PHSP is defined under subsection 248(1) of the Act as a contract of insurance in respect of hospital expenses, medical expenses, or any combination of such expenses or a medical care insurance plan, a hospital care insurance plan, or any combination of such plans. While it is a question of fact whether a particular arrangement would satisfy the definition of a PHSP, the Canada Revenue Agency (CRA) generally accepts that medical and hospital insurance plans offered by Blue Cross are considered PHSPs within the meaning of subsection 248(1) of the Act.
In the situation that you describe the health and medical plan, that the premiums will be paid for, is XXXXXXXXXX Blue Cross and Blue Shield insurance plan (XXXXXXXXXX Blue Cross plan). The purpose of the XXXXXXXXXX Blue Cross plan is to reimburse the employee for certain medical and health care costs the employee incurs, while in the United States.
The CRA considers that a plan is a PHSP, amongst other conditions, if ‘all or substantially all’ of the premiums paid under the plan relate to medical expenses that are eligible for the medical expense tax credit (METC). “All or substantially all” generally means 90% or more.
The CRA’s views on whether a medical expense, incurred outside Canada, would be eligible for the METC are included in the Income Tax Folio S1-F1-C1, Medical Expense Tax Credit (METC Folio). The METC Folio states that, notwithstanding several exceptions, “eligible medical expenses are not restricted to those paid in Canada or for medical services provided in Canada”.
Whether ‘all or substantially all’ of the premiums paid under the XXXXXXXXXX Blue Cross plan relate to medical expenses that are eligible for the medical expense tax credit (METC) is a question of fact and can only be determined by the insurer of the plan.
We trust that our comments will be of assistance.
Lita Krantz, CPA, CA
Manager, Tax Credits and Ministerial Issues
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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