16 December 1993 Income Tax Severed Letter 9323725 - Same Sex Partner Coverage for Health Care 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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

XXXXXXXXXX                                 932372

Attention: XXXXXXXXXX

December 16, 1993

Dear XXXXXXXXXX

Re: Health Care Plans for Employees

We are replying to your letter of August 12, 1993 to Terry Miszaniec which was referred to us for reply. We apologize for the delay in our response.

You have asked us to confirm Revenue Canada's position with respect to the taxation of employee benefits arising from health care insurance provided to a same sex partner of an employee under the employer's benefit plan.

The tax consequences of an actual plan can only be determined upon a review of all the relevant facts and documentation pertaining to that plan. The comments which follow are general in nature and are not binding on the Department with respect to any particular plan. If you need further assistance, please submit all the relevant documentation including employee booklets outlining the plans and any agreements made with the insurance company to your local district taxation office for their comment and review.

Benefits received by employees by virtue of or in respect of their employment are included in income unless such benefit is specifically exempted by reason of one of the subparagraphs of 6(1)(a) of the Income Tax Act (Act). The benefit from an employer provided dental or health care plan is exempt provided that the plan qualifies as a "private health services plan" (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, 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 PHSP within the meaning of subsection 248(1) of the Act.

Where an employer wishes to extend to its employees non-qualifying benefits 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 or could be structured as an employee trust as described in the attached Interpretation Bulletin IT-502 "Employee Benefit Plans and Employee Trusts". Where the employer provides the benefits by way of a contribution to a trust or fund held by a third party including an insurer, for the payment of claims under the employee benefit plan, the employee will be required to include any reimbursement in income in the year of the reimbursement. If the employer's plan provides the non-qualifying benefits by means of an insurance policy, the employee includes the value of that insurance coverage enjoyed (i.e. the premium paid by the employer for that coverage) in his or her income for the year. The employer's deduction for contributions to the plan is restricted to the amount which has been included in the employees' income on account of benefits received from the 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.

In summary, where an employer's plan includes both benefits which qualify for inclusion in a PHSP and those which do not, the plan will not be a PHSP and all the employees will be required to include any benefits received under the plan in their income.

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

c.c. Toronto District Office c.c. Terry Miszaniec, Audit Technical Support