28 June 1994 External T.I. 9408885 - C/F OF EXPENSES IN A HEALTH SPENDING ACCOUNT

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.

Principal Issues:

whether the company's health spending account is a PHSP

Position TAKEN:

likely yes but it is a question of fact

Reasons FOR POSITION TAKEN:

c/f is limited to 1 year c/f of expenses & forfeiture of credits at end of plan year
A. Humenuk

XXXXXXXXXX        940888

Attention: XXXXXXXXXX

June 28, 1994

Dear Sirs:

Re: Health Spending Plan

We are replying to your letter of March 30, 1994 concerning the health spending account that your company instituted on April 1, 1994.

You asked us to confirm that your plan qualifies as a "private health services plan" as defined in subsection 248(1) of the Income Tax Act. Confirmation of the tax consequences of specific transactions is only given 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 and is restricted to proposed transactions. However, we offer the following general comments concerning your plan based on the information provided in your letter.

In the comments that follow, unless otherwise stated, all statute references are to the Income Tax Act S.C. 1970-71-72, c.63 as amended, consolidated to June 10, 1993 (the Act).

It is our understanding that executives and managers are entitled under your plan to a reimbursement of up to $5,000 annually for any medical expense incurred in the year or the immediately preceding year provided that the expense qualifies as a medical expense as defined in subsection 118.2(2) of the Act. Any credit remaining at the end of the plan year is forfeited. The plan is self insured in that XXXXXXXXXX pays employees directly upon the submission of the original receipt or benefit statement from another plan showing the portion not reimbursed by that plan. The details of the plan were outlined in a memorandum to the eligible employees (a copy of which was submitted with your letter) and will be included in the benefits brochure for executives and managers.

The plan so described will normally qualify as a private health services plan as defined in subsection 248(1) of the Act provided that the eligible employees were not required to forgo any income or other benefits in order to obtain coverage under the plan. Where the plan is a private health services plan, eligible employees will not be required to include in income any benefit derived from the employer's contribution to the plan. The employer will be entitled to a deduction for the amounts paid by the employer as a reimbursement under the plan to the extent that the amount is reasonable and was incurred to earn income.

While we trust that our comments will be of assistance to you, we would caution that they do not constitute an advance income tax ruling and are, accordingly, not binding upon the Department with respect to any particular transaction.

Yours truly,

P.D. Fuoco
for Director
Business and General Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch