24 September 1993 Ministerial Letter 9325598 F - Same Sex Partner Coverage Under a PHSP

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

Dear XXXXXXXXXX

I am writing in response to your request for information in connection with XXXXXXXXXX the effects of income tax legislation on employee health plans that provide coverage for same-sex partners.

I understand that many employers in Ontario are amending their health care plans to provide coverage for an employee's partner of the same sex. As explained below, the inclusion of non-qualifying benefits in a health care plan can alter the tax treatment afforded to such a plan.

The benefits received from an employer's tax deductible contribution to a medical or dental plan will be tax-exempt to an employee provided that the plan qualifies as a "private health services plan" (PHSP) as defined in the Act. Benefits from a non-qualifying plan are taxable to the employee in the year in which the benefit is received and the employer's contribution to the plan is deductible at that time.

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 ...".

A discussion on what constitutes a PHSP is contained in 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 would otherwise qualify under the medical expense tax credit provisions if paid by the employee personally (see IT-519 "Medical Expense and Disability Tax Credits" for a description of the types of expenses which qualify).

With respect to the issue of coverage for same-sex partners, it is the definition of qualifying dependents for the purpose of the medical expense tax credit which is relevant. 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 definition is extended to include a person of the opposite sex with whom the individual cohabits in a conjugal relationship. 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, medical expenses paid in respect of a same-sex partner do not qualify for inclusion in a PHSP. This treatment applies as well to the payment of any other expense which does not qualify for the medical expense tax credit.

Where an employer wishes to extend to its employees non-qualifying benefits as well as those which do qualify, the non-qualifying benefits could be offered through a separate plan, thereby preserving the tax free status of the benefits which do qualify for inclusion in a PHSP.

The question has also arisen as to what action the Department will take in respect of a plan which purports to be a PHSP but which provides non-qualifying coverage. With the view to encouraging compliance on a voluntary basis we have explained, when asked, the tax implications relating to plans which provide any type of non-qualifying coverage. If a plan is discovered to be incompatible with the criteria established by legislation, Departmental officials will discuss a course of action with the plan administrator, including modifications as required, which will allow the plan to maintain its tax-exempt status.

I hope these comments will be of assistance to you XXXXXXXXXX I have enclosed copies of the aforementioned Interpretation Bulletins. If you require further information please do not hesitate to contact me.

Yours truly,

Denis Lefebvre Assistant Deputy Minister Legislative and Intergovernmental Affairs Branch

September 14, 1993