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: Private Health Services Plans
We are replying to your letter of May 27, 1993 concerning a proposed Supplementary Health Care Account (SHCA) and whether the plan will qualify as a private health services plan (PHSP) as defined in subsection 248(1) of the Income Tax Act (the Act). We apologize for the delay in our response.
The income tax implications resulting from proposed transactions are confirmed by this Department only by way of an advance income tax ruling as described in the attached Information Circular 70-6R2 "Advance Income Tax Rulings" dated September 28, 1990 and Special Release thereto dated September 30, 1992. However, we are prepared to offer the following general comments which may be of assistance to you.
The plan you describe appears to be a self-insured arrangement whereby an employer contributes funds to a trust in accordance with a collective agreement. As a result of the employer's contributions to the SCHA, the trust will reimburse employees for qualifying medical expenses incurred up to the value of credits allocated to each employee.
You have asked whether a SHCA which provides for both a carryforward of unused credits and unclaimed expenses for a period of one year following the year in which the credits were allocated or the expenses were incurred would qualify as a PHSP, provided that the plan otherwise so qualified. You also ask whether the limit on carryforward of expenses to a subsequent year is limited to one year or whether the plan could permit the carryforward of expenses indefinitely without jeopardizing the status of the plan as a PHSP. Additionally, you ask whether the balance of unused credits in an account could be paid to a designated beneficiary upon the death of the employee and still have the plan qualify as a PHSP.
In order for a particular plan to qualify as a PHSP, the plan must, among other criteria, be a plan of insurance as explained in paragraph 3 of Interpretation Bulletin IT-339R2. With respect to a self-insured arrangement, the plan must involve a reasonable degree of risk and thus, a plan which minimizes the employee's risk of being unable to use the flex credits allocated to the plan will not likely be a PHSP. While a carryforward period undoubtedly reduces the risk of loss to the employee, it is our view that a plan which permits the carryforward of either flex credits or eligible medical expenses (but not both) up to a maximum of 12 months will not be disqualified as a PHSP solely by reason of the carryforward provision in the plan.
However, a plan which permits a carryforward period of both expenses and credits or a plan which permits a carryforward in excess of 12 months takes on the nature of a savings plan rather than a plan of insurance and would not qualify as a PHSP. Likewise the payment of any unused credits to a designated beneficiary upon death eliminates any risk that the value of the credits will not be paid to the employee in some capacity irrespective of the amount of medical expenses actually incurred by that employee. A plan which contains such a provision will not qualify as a PHSP and will be treated as either an employee benefit plan or an employee trust as explained in the attached Interpretation Bulletin IT-502 "Employee Benefit Plans and Employee Trusts" and special release thereto.
We caution you that the above noted comments are general in nature and are not binding on the Department in respect of any particular plan.
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
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 1993
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 1993