26 April 1995 External T.I. 9502355 - NON-INSURED HEALTH BENEFITS (INDIANS)

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:

1. Tax treatment of Private Health Insurance Plans of Indian Employees?

2. Tax treatment of Non-Insured Health Benefits ("NIHB's") provided to Native Peoples by Health Canada?

Position TAKEN:

1. Employment related benefits are treated in same manner as the related employment income.

2. No provision in Act which would require Native Peoples to include IHB's in income.

Reasons FOR POSITION TAKEN:

Departmental position.

Marie Blanche Hébert
Policy Analyst, NIHB
Medical Services Branch 950235

Health Canada Wm. P. Guglich

Room 976, Jeanne Mance Bldg.

Tunney's Pasture
Ottawa, Ontario
K1A 0L3

April 26, 1995

Dear Sirs:

Re: Tax Treatment of Non-Insured Health Benefits ("NIHB's")

This is in reply to your inquiry dated January 25, 1995 concerning the tax treatment of NIHB's provided by your Branch to registered Indians, Inuit, and Innu people not covered by provincial or territorial health insurance plans or other third party insurance. The basis of providing these benefits is the Indian Health Policy of 1979.

Our comments respecting your queries follows:

1.Questions respecting provincial taxation issues should be directed to the relevant provincial government for an authoritative response. However, for provinces that have adopted the federal government's view of the Indian Act exemption please refer to paragraph 2 below.

2.If the federal government were to impose a tax on private health insurance plans, and we note that the February 27, 1995 budget proposals made no reference to the taxation of private health insurance plans, you question whether status Indians living and working off reserve would be subject to tax. As employment related benefits received by an Indian employee are generally treated in the same manner as the related employment income, it would depend on whether the related employment income was subject to tax.

The Department issued the Indian Act Exemption for Employment Income Guidelines in June 1994. Guideline 4 will apply to exempt the income of a status Indian employee who lives and works off reserve when:

- the employer is resident on a reserve; and

- the employer is:

an Indian band which has a reserve, or a tribal council representing one or more Indian bands which have reserves, or

an Indian organization controlled by one or more such bands or tribal councils, if the organization is dedicated exclusively to the social, cultural, educational, or economic development of Indians who for the most part live on reserves; and

- the duties of the employment are in connection with the employer's non-commercial activities carried on exclusively for the benefit of Indians who for the most part live on reserves.

To summarize, unless employment income is exempt by virtue of Guideline 4, the Indian Act exemption does not apply to exempt from tax employment income, nor the employment-related income, of an Indian who both lives and performs the duties of employment off the reserve.

Until draft legislation is available we are unable to comment with any certainty on how any future amendments to the Income Tax Act may affect the tax treatment of private health insurance plans. However, where Guideline 4 does not apply, the Indian Act exemption would not apply to exempt from federal tax otherwise payable any benefits provided under a private health services plan to an Indian who both lives and performs the duties of employment off the reserve.

Consequently, if the Income Tax Act were to be amended so that private health insurance plans were taxable, the benefits received in respect of the plan by an Indian employee who both lives and performs the duties of employment off the reserve, and to whom Guideline 4 does not apply, would be subject to tax.

3. There are no provisions in the current Canadian Income Tax Act which would require Native people to include in income the amount of any NIHB they may receive. As to whether NIHB's would be subject to Quebec Income Tax we suggest you contact the Quebec taxation authorities.

We trust our comments will be of assistance to you.

Yours truly,

R. Albert
for Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch