16 June 1993 External T.I. 9311985 F - PHSP Benefits for Same Sex Partners

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.

XXXXXXXXXX

Attention:  XXXXXXXXXX

Dear Sirs:

RE:  Employee Sponsored Benefit Plans

We are replying to your letter of April 27, 1993 concerning employer sponsored benefit plans which provides coverage for an employee's partner of the same sex. Reference is also made to our telephone conversation (XXXXXXXXXX\Fuoco) of May 19, 1993. We apologize for the delay in response.

You note that many employers in Ontario have amended their benefit plans to change the definition of "spouse" as used in their plan documents to include an employee's partner of the same sex. You also note that the status of the employer's plan as a "private health services plan" (PHSP) as defined in the Income Tax Act (the Act) may be at risk because of such an amendment. You ask what advice you can give to employers who wish to provide the extended coverage yet wish to preserve their plan's status as a PHSP.

A PHSP is defined, in part, in subsection 248(1) of the Act as

     "(a)      a contract of insurance in respect of hospital expenses, medical expenses or any combination of such expenses, or

      (b)     a medical care insurance plan or hospital care insurance plan or any combination of such plans ...".

The Department's position on what constitutes a PHSP is outlined in the attached Interpretation Bulletin IT-339R2 "Meaning of "Private Health Services Plan"". As stated in paragraph 4, the types of expenses which may be provided under a PHSP are limited to those which qualify as medical expenses for the purpose of the medical expense tax credit as defined in subsection 118.2(2) of the Act. Since a claim for the medical expense tax credit is limited to the expenses incurred in respect of an individual, the individual's spouse or a dependant of the individual within the meaning of subsection 118(6) of the Act, coverage within the same plan for an individual other than that described above would jeopardize the status of the plan as a PHSP.

For the purposes of the Act "spouse" means persons who are legally married according to the laws of Canada and effective with the 1993 taxation year, the meaning thereof is extended to include a person of the opposite sex with whom the individual cohabits in a conjugal relationship. Consequently, a health care plan which provides coverage for individuals in respect of whom its employees would not be entitled to a medical expense tax credit would not be a private health services plan within the meaning of subsection 248(1) of the Act.

Where an employer wishes to extend to its employees benefits which do not qualify for inclusion in a PHSP as well as those which do qualify, the non-qualifying benefits can be offered through a separate plan, thereby preserving the tax-free status of the benefits which do qualify for inclusion in a PHSP. However, where it is not feasible for the employer to set up two separate plans, the Department is prepared to treat the plan as two separate plans provided that the plan administrator accounts for the contributions, income and disbursements of the part of the plan which provides non-taxable benefits separately from that which provides taxable benefits.

Where a particular health plan does not qualify as a PHSP, the plan or the portion thereof which does not qualify and which has been segregated from the rest of the plan, will likely be considered to be an employee benefit plan unless it is structured as an employee trust as described in the attached Interpretation Bulletin IT-502 "Employee Benefit Plans and Employee Trusts". Under an employee benefit plan, an employee is required to include in income the value of any benefit received out of the plan in the year and the employer's deduction is limited to the amount which is included in the income of its employees for the year. Where both the employee and employer have made contributions to such a plan, any benefit which would otherwise be taxable to the employee can be reduced to the extent that the amount received out of the plan can be considered to be a return of the employee's contribution to that plan.

Under an employee trust, the right to benefits vests with the employees at the time the contributions are made by the employer, the plan administrator allocates the net income of the trust including the employer's contributions to the employees annually and the employees include such allocation in income each year.

If an employer sponsored plan which purports to be a PHSP is discovered to contain elements which would disqualify the plan, the first course of action will always be to discuss with the plan administrator a course of action, including modifications as required, which will allow the plan to maintain its tax-exempt status.

We trust our comments will be of assistance to you.

Yours truly,

P.D. Fuoco for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch