27 October 1994 External T.I. 9419655 - SAME SEX HEALTH CARE BENEFITS NOT 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.

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 A. Humenuk
941965
Attention: XXXXXXXXXX

October 27, 1994

Dear Sirs:

Re: Private Health Services Plans

We are replying to your letter of July 27, 1994 requesting information concerning the tax implications associated with employer-provided health care insurance. We apologize for the delay in our response.

In your letter you state that your customers are investigating the tax implications of providing health care insurance coverage for the same sex partners of their employees. In order to assist them in this matter, you ask whether the inclusion of coverage for the same sex partner of an employee in an employer-funded health care plan would affect the tax status of benefits received out of the plan for either the specific employees who desire this coverage or for all the employees who are covered by the plan. If such coverage would disqualify the plan as a private health services plan, you ask what steps are necessary to offer the additional coverage for same sex partners through a separate plan. You also ask whether our position would change if jurisprudence or changes in the provincial human rights legislation makes such coverage mandatory and whether our position is currently under review.

Where an employer provides health care insurance to employees under a private health services plan (PHSP), as that term is defined in the Income Tax Act (the Act), the benefit is excluded from the employee's income by reason of paragraph 6(1)(a) of the Act. 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 normally 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, coverage within the same plan for anyone else would jeopardize the status of the plan as a PHSP.

While the definition of spouse for income tax purposes extends beyond its legal definition to include, within certain parameters, a person of the opposite sex who cohabits with the individual in a conjugal relationship, it does not include a same sex partner of the individual. Similarly, a dependent, as defined in subsection 118(6) of the Act must, among other criteria, be related to the individual by blood or marriage. Thus, where a health care plan provides coverage for same sex partners of employees (or any other non-qualifying benefit), the plan would not be a PHSP within the meaning of subsection 248(1) of the Act. Where an employer provides both qualifying and non-qualifying benefits through the same plan, all employees covered by the plan will be required to include in income the value of any benefit received under the plan.

Where an employer wishes to extend to its employees non-qualifying health care benefits as well as those which do qualify for inclusion under a PHSP, the non-qualifying benefits can be offered through a separate plan, thereby preserving the tax free status of the benefits which do qualify. 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. While separate employer records and separate insurance policies are not required, there must not be any cross-subsidization between the plans and the level of benefits, the premium rates, the qualifications for membership and other terms and conditions of each of the plans must not be dependent upon the existence of the other plan or plans.

Where the coverage is provided by means of an insurance policy, this means that the premium rate for each group must be determined independent of the other group. Where a particular health plan does not qualify as a PHSP, the plan or the portion thereof which does not qualify and has been segregated from the rest of the plan, will likely be considered to be an employee benefit plan as described in the attached Interpretation Bulletin IT-502 "Employee Benefit Plans and Employee Trusts" (or alternatively, as an employee trust). Where the plan benefits are provided by means of an insurance policy under an employee benefit plan, the amount of the benefit is the value of insurance coverage enjoyed by the employee in the year (i.e. the premium paid by the employer for coverage for the employee and anyone else covered by reason of the employment of that employee).

With respect to your final two questions, we are not in a position to comment on possible future legislative change or developments in this or any other area. We can however advise you that the Department of Finance, which is responsible for proposing amendments to the Act, is aware of this issue.

We trust these comments explain the Department's position in this matter.

Yours truly,

P.D. Fuoco
for Director
Business and General Division
Rulings Directorate
Policy and Legislation Branch