13 January 1995 External T.I. 9424415 - PHSP FOR SAME SEX PARTNERS

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:

medical insurance coverage for same gender partners where insurer will not issue a separate policy

Position TAKEN:

an employer may have two separate plans (a phsp & an employee benefit plan) even though there is only one policy
-discussion on the valuation of the benefit

Reasons FOR POSITION TAKEN:

the plan can be distinguished from the policy

A. Humenuk
XXXXXXXXXX 942441

Attention: XXXXXXXXXX

January 13, 1995

Dear XXXXXXXXXX:

Re: Private Health Services Plans for Same Sex Partners

We are replying to your letter of September 15, 1994 concerning the taxation of your private health services plan (PHSP) and our previous letter to you dated December 15, 1993. Reference is also made to our telephone conversation of December 13, 1994 (XXXXXXXXXX/Humenuk). We apologize for the delay in our response.

Having considered the comments in our previous letter, you decided not to extend medical care insurance benefits to the same gender partner of your employees. XXXXXXXXXX You further advise that recently enacted legislation in British Columbia prevents an employer from discriminating against its employees in respect of the availability of benefits for dependants, including a same gender partner of an employee. You ask for our comments in light of this additional information.

Our position with respect to private health services plans as stated in our letter of December 15, 1993 remains the same. However, we would like to add further clarification on how an employer may provide non-qualifying benefits through a separate plan from the plan which is intended to be a private health services plan as defined in subsection 248(1) of the Income Tax Act (the Act) when the insurer is not willing to issue two separate policies.

As stated in our previous letter, a distinction must be made between a plan which provides benefits to an employee and the policy which is used to fund such benefits. The Department considers that separate plans exist if the administration of the plans demonstrates the fact that they are separate by separate accounting for claims, premiums and administrative charges. However, 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. If the policy is experience-rated, separate experience ratings must be established for each plan.

To illustrate how two plans covered by a single policy can exist without cross-subsidization, we can look to the manner in which the value of the insurance benefit is determined. The value of insurance coverage under a particular plan is the premium rate which the insurer would charge for coverage of all the individuals covered under that plan. For example, where an insurer has established a single premium rate for each employee regardless of the number of employees covered by the policy, that premium rate would be the value of any insurance benefit offered under the plan. If the insurer offers a lower rate for groups in excess of a certain number, the value of the benefit will be determined on the basis of the number of individuals covered by the plan rather than the number covered by the policy.

Thus, the value of the medical or dental coverage for an individual who does not qualify for inclusion in the private health services plan offered by the employer will be the premium rate which would be applicable for such coverage if coverage under the policy was limited to individuals covered under the non-qualifying plan. Depending on the method followed by the employer, this might be the value of family coverage (if both the employee and the non-qualifying individual are covered under the non-qualifying plan) or the value of single coverage (if it is only the non-qualifying individual who is covered under the non-qualifying plan).

In our telephone conversation, you also asked for further clarification of the distinction between the benefit of insurance coverage and the benefit from the reimbursement of medical expenses. If the employer pays premiums on an insurance policy for an employee where such insurance is not exempt by reason of paragraph 6(1)(a) of the Act, the benefit which is to be included in income is the value of the premium paid on behalf of that employee. Any reimbursements received by an employee in respect of a claim on that policy would not be a benefit to the employee. If however, the employer provides the same coverage through a self-insured arrangement, the value of the benefit to be included in the employee's income would be the value of any reimbursements received from the employer or trust through which the benefit plan is being administered.

We trust our comments will be of assistance to you.

Yours truly,

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