10 January 1995 External T.I. 9426505 - PRIVATE HEALTH SERVICES PLAN - SELF-FUNDED

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:

Will employees be subject to tax on reimbursements from self-funded dental plan?

Position TAKEN:

Question of Fact. Depends on whether it meets the defintion of a PHSP and is a condition of the contract of employment i.e., an obligation of the employer. But it appears from the information provided that the plan so described in the correspondence would qualify.

Reasons FOR POSITION TAKEN:

Previous correspondence, IT-339R2 and 85R2

XXXXXXXXXX 942650
D. Zion

Attention: XXXXXXXXXX

January 10, 1995

Dear XXXXXXXXXX:

Re: Health Spending Plan

We are writing in reply to your letter of October 6, 1994 concerning the health spending plan (HSP) that your company instituted effective XXXXXXXXXX. 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 (the "Act").

As mentioned in our telephone conversation of January 3, 1995 (Zion/XXXXXXXXXX) 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.

It is our understanding that all full-time, permanent staff who have been employed for at least three months as of XXXXXXXXXX and all new staff, upon completion of three months of employment, will be automatically enrolled in the HSP. Members of the HSP, as well as their eligible dependents, are entitled to a reimbursement of up to $200 bi-annually for any eligible vision care products 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 bi-annual term is forfeited and there is no rollover of unreimbursed expenses above the bi-annual limit. The HSP 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 to be outlined in an announcement to the eligible employees (a sample copy of which was submitted with your letter) and will be included in the benefits brochure for all employees.

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 reimbursement of eligible expenses under 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
Policy and Legislation Branch