5 May 2026 External T.I. 2025-1055171E5 - Employer Contributions - Health Care Spending Account

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 payments made by the Retirement Benefit Program Fund to a health care spending account are "employer contributions" to the plan, as contemplated by subparagraph 6(1)(a)(i) of the Income Tax Act, or foregone income of active employees.

Position: Question of fact and law.

Reasons: Tax treatment depends on whether the employer had a legal obligation to make contributions on its own accord.

XXXXXXXXXX 2025-105517
Chris Brennan, CPA, CA

May 5, 2026

Dear XXXXXXXXXX:

Re: Employer Contributions - Health Care Spending Account

We are writing in response to your email dated February 28, 2025 wherein you requested our views on whether certain payments made to a health care spending account (HCSA) would be considered “employer contributions”, as contemplated by subparagraph 6(1)(a)(i) of the Income Tax Act (Act). We apologize for the delay in our response.

The scenario outlined involves a number of parties, which you have described as follows:

• the XXXXXXXXXX, which represents publicly funded health employers in XXXXXXXXXX
• the XXXXXXXXXX, a labor union representing nurses and other healthcare professionals in XXXXXXXXXX
• the XXXXXXXXXX constituent unions. The XXXXXXXXXX is the bargaining agent for nurses in XXXXXXXXXX who are covered under collective agreements with provincial health authorities and facilities. The majority of the nurses are represented by the XXXXXXXXXX.
• the Retirement Benefit Program Fund (Fund) is a labour fund that provides funding for health benefits for retirees who were members of the XXXXXXXXXX (eligible retirees)

We understand that the XXXXXXXXXX collects amounts from participating employers and remits the amounts to the XXXXXXXXXX, who then transfers those amounts into the Fund. XXXXXXXXXX is proposing to use the amounts in the Fund to establish a HCSA for eligible retirees of the Fund, who would be provided with an annual flat dollar allocation which they could use towards health benefits.

Our Comments

This technical interpretation provides general comments about the provisions of the 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 70-6R12, Advance Income Tax Rulings and Technical Interpretations.

Paragraph 6(1)(a) of the Act includes in a taxpayer’s income from an office or employment the value of board, lodging, and other benefits of any kind whatever received or enjoyed by the taxpayer in the year in respect of, in the course of, or by virtue of the taxpayer’s office or employment.

Subparagraph 6(1)(a)(i) of the Act specifically excludes from employment income (among other things), any benefits derived from the contributions of the taxpayer’s employer to or under a private health services plan (PHSP) (i.e., the contributions themselves as well as benefits provided through the plan). The phrase “the contributions of the taxpayer’s employer” serves to limit this exception to PHSPs which are funded (in full or in part) by employer contributions.

In determining whether the payments you describe are employer contributions for purposes of subparagraph 6(1)(a)(i), the manner in which these payments are collected or remitted is not determinative. It is our view that an employer contribution exists only if the employer is legally obligated to make those contributions. Whether the amounts collected from participating employers and transferred to the Fund would be considered employer contributions is a question of fact and law. However, where it is established that the employers from whom the XXXXXXXXXX collects payments have a legal obligation to make such payments, the amounts so paid would constitute employer contributions.

Further, in order for these contributions to constitute employer contributions for purposes of subparagraph 6(1)(a)(i) of the Act, it would also need to be established that the amounts contributed to the Fund in the manner described are used to fund an HCSA that otherwise qualifies as a PHSP.

A PHSP is defined in 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. It is therefore a question of fact whether a particular plan satisfies the definition of a PHSP and meets other requirements. For more information about the conditions which must be met for a particular plan to qualify as a PHSP, refer to Medical expenses, including payments from a private health services plan (PHSP) - Canada.ca.(footnote 1)

Where this is the case, neither the amounts so contributed to that plan nor the benefits provided to retired employees through the plan would be taxable by virtue of the exception provided by subparagraph 6(1)(a)(i) of the Act.

Yours truly,

Tom Baltkois, CPA, CGA
Manager
Business and Employment Income Section
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

FOOTNOTES

Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:

1. https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/benefits-allowances/medical-expenses.html