9 September 1992 Income Tax Severed Letter 9221345 - 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.

922134
                                           A. Payette
     24(1)                                 (613) 957-8953

Attention: 19(1)

September 9, 1992

Dear Sirs:

Re: Proposed Amendment to a Flexible Benefits Plan

This is in reply to your letter of July 9, 1992 wherein you requested that we confirm the income tax treatment of several changes to be made to a Flexible Benefit Plan (the "Plan"). More specifically, the corporation proposes to reimburse employees for expenses not currently reimbursed by the existing Plan such as

(i) health and dental care deductibles;

(ii) co-payment amounts;

(iii) expenses in excess of specified benefit maxima; and

     (iv) certain medical expenses described in subsection
          118.2(2) of the Income Tax Act (the Act) and
          Regulation 5700 of the Act which are not covered
          by the Plan.

OUR COMMENTS

The particular circumstances outlined in your letter on which you have asked for our interpretation is a factual situation involving specific taxpayers. As indicated in paragraph 21 of Information Circular 70-6R2, 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. We are unable to comment specifically on each particular plan amendment without having reviewed the plan documents. However, we are prepared to offer the following general comments which may be of some assistance to you.

We are assuming that the question regarding the tax treatment of the proposed plan amendment, the purpose of which is to cover expenses not covered by a standard PHSP, is whether the amended plan would still qualify as a PHSP as that term is defined in subsection 248(1) of the Act. As discussed in IT-339R2 , a PHSP must be in the nature of insurance and must contain the following basic elements:

i) an undertaking of one person,

ii) to indemnify another person,

iii) for an agreed consideration,

iv) from a loss or liability in respect of an event,

v) the happening of which is uncertain.

Furthermore, as indicated in paragraph 4 of IT-339R2 , the coverage under a PHSP must be in respect of hospital care or expense or medical care or expense which normally would have qualified as a medical expense under the provisions of subsection 118.2(2) of the Act in the determination of the medical expense tax credit.

We trust the foregoing is of assistance.

Yours truly,

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

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