19 November 1993 Internal T.I. 9316317 F - 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.

Halifax District OfficeBusiness and General Division T.C. O'Driscoll

J.A. Szeszycki Chief of Source Deductions (613) 957-2135

Employee Medical Plan

This is in reply to your memorandum of May 31, 1993 in which you asked for our comments concerning the medical plan submitted to you by XXXXXXXXXX The company wishes to confirm whether or not payments made by the plan to its employees would be treated as a taxable benefit. We regret the delay in providing you with a response.

We have reviewed the "Medical Plan Document" (the "Plan") attached to your memorandum. The Plan appears to contain the basic elements of a "Private Health Services Plan" as set out in paragraph 3 of Interpretation Bulletin IT-339R2. The expenses covered under the Plan as described in schedule 1, subject to the clarification below, seem to be limited to those which would otherwise be deductible under subsection 118.2(2) of the Income Tax Actand section 5700 of the Income Tax Regulations.

In addition to the list of expenses which qualify for reimbursement under the Plan a list is provided which includes examples of expenses that do not qualify as medical expenses under the Act. One such ineligible item refers to the cost of "special food or beverages - unless they have no nutritional value to you and are taken only to treat or alleviate an illness.". This statement appears to imply that the cost of those special foods and beverages that allegedly do not have nutritional value and that are taken to treat or alleviate an illness are eligible for inclusion in the computation of the medical expense tax credit without any other criteria being met. Special foods or beverages are considered to be "medicaments, or other preparations or substances" as that phrase is used in paragraph 118.2(2)(n) which requires that two other conditions be met in order for those costs to be eligible; (1) that they be prescribed by a medical practitioner and (2) that the item be purchased from a licensed pharmacist who has recorded the prescription in his prescription record.

It is not clear from the documents provided for our review just how the medical coverage provided under the Plan and the administration of the Plan is funded. The comments under the captions XXXXXXXXXX imply that there are contributions required on the part of the employee in respect of administrative expenses of the Plan. It is also not clear whether the plan is a "cost plus" plan as described in paragraph 6 of Interpretation Bulletin IT-339R2 or is intended to be an arrangement described in paragraph 7 of that bulletin. Some provisions in the plan suggest the use of an administrator and others indicate that the employer will reimburse employees directly. Furthermore, if employer contributions are required (which does not appear to be the case), then the Plan must also qualify as a health and welfare trust as described in IT-85R2. In this regard, you may wish to forward with your response to XXXXXXXXXX a copy of these bulletins.

XXXXXXXXXX also makes passing reference in his letter to benefits being received by employee/shareholders. Whether an employee/shareholder receives a benefit in his capacity as an employee or shareholder is always a question of fact. If received in his capacity as a shareholder it would be treated as a shareholder benefit under subsection 15(1) of the Act. If the benefit is received in his capacity as an employee and it otherwise qualifies as a benefit under a private health services plan then it would be received tax free in the hands of the individual.

P.D. Fuoco Section Chief Personal and General Business and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch