13 July 1992 Income Tax Severed Letter 9215235 - 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.

921523
24(1) A. Payette
(613) 957-8953

Attention: 19(1)

July 13, 1992

Dear Sirs;

Re: Private Health Services Plan ("PHSP")

This is in reply to your letter of May 5, 1992, wherein you requested confirmation that a payment/reimbursement by an employer qualifies as a PHSP pursuant to subsection 248(1) of the Income Tax Act (the "Act") and that the payment/reimbursement is not included in the income of the employees due to the exemption in subparagraph 6(1)(a)(i) of the Act and is considered expenses of the employer for purposes of paragraph 18(1)(a) in the following arrangement.

• 1. The company agrees to reimburse the employee for qualifying medical expenses to a maximum of $24(1) per calendar year;
• 2. the employee will submit receipts or other documentary evidence satisfactory to the company in support of the expense;
• 3. The expense must qualify as a medical expense as defined in subsection 118.2(2) of the Act;

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• 4. The expense must be in respect of the employee, the employee's spouse, or a dependent child of the employee;
• 5. The expense must not be the subject of reimbursement through any other health services plan, either public or private;
• 6. Quantification of the $24(1) maximum will be calculated based on the date the medical expense is incurred, and not the date of submission for reimbursement. Unused amounts for any calendar year are forfeited and no provision will exist to carry over excess expense amounts to subsequent years;
• 7. Entitlement to reimbursement will commence for expenses incurred after 90 days of employment with the company;
• 8. Since it is acknowledged by the company that entitlement to reimbursement under the qualifying terms forms part of the employment contract, no reimbursement shall succeed termination or severance of employment, regardless of circumstance;
• 9. In the event of any disagreement in respect of the eligibility for reimbursement of any expense, the company's decision will be final and binding.

OUR COMMENTS

The particular circumstances outlined in your letter and the accompanying document on which you have asked our views appear to be a factual situation involving a specific taxpayer. As explained in Information Circular 70-6R2, it is not the Department'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 specific taxpayers and completed transactions, you should submit all relevant facts and documentation to the appropriate district taxation office for their views. Furthermore, we are unable to comment specifically on a particular plan without having reviewed the plan documents. However, we are prepared to offer the following general comments which may be of some assistance to you.

Paragraph 7 of Interpretation Bulletin IT-339R2 makes a general statement that an arrangement of the type described above "may" come within the definition of a PHSP provided the employer has a contractual obligation to make the payment. Whether or not such an obligation exists would involve a finding of fact in each particular situation. Although there are no written contracts of employment, it would appear from the limited information submitted that the arrangement described in the memorandum addressed to all the employees may qualify as a PHSP in accordance with paragraph 7 of IT-339R2. As a result, reimbursements made by the employer to an employee for qualifying medical expenses would be deductible as business outlays or

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expenses for the purposes of paragraph 18(1)(a) of the Act subject to section 67 of the Act and such reimbursements would not be taxable to the employee.

The above comments reflect an expression of opinion only, and as such, are not binding upon the Department.

We trust our comments will be of assistance to you.

Yours truly,

P.D.Fuoco
for Director
Business and General Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch

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