13 April 1995 Internal T.I. 9509426 - FORMER EMPLOYER PAYS PROV HEALTH PREMIUM

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:

Alberta has eliminated an exemption from the payment of premiums for health care benefits previously granted to seniors. Client was required to remin health care premiums. The client received a 50% refund of the provincial health care premiums paid by him (by virtue of being a Federal Superannuate living in Alberta or B.C.). Refund received had tax withheld at source and client queries whether this is double taxation in that his original premium was not tax deductible and paid for with after-tax dollars and the rebate was subject to tax at source

Position TAKEN:

Rebate is subject to taxation at source (see IT-247). Had the former employer not paid or reimbursed the client for 50% of the total premium expense, the client would have been out $384 from his after-tax income (are after tax as premiums paid to a provincial medical or hospitalization plan are not qualifying medical expenses). Former employer has financed the cost of one half of the required premium by way of reimbursement hence the client is out-of-pocket a net of only $192 (his share) plus any income tax obligation in respect of the former employer's payment of one half of the premium expense.

Reasons FOR POSITION TAKEN:

			April 14, 1995

	Client Services  Directorate	Headquarters
	Louis Lamontagne, Chief	Income Tax Rulings and
	Correspondence Section	   Interpretations 		Directorate
		Sandra Short
	Attention:  Mr. Joao Melo	(613) 957-8953

		950942

Ministerial Correspondence: Medical Expenses

This is in reply to your April 6, 1995 referral of two pieces of correspondence which relate to the payment of provincial health care premiums by senior citizens.

As discussed with Mr. Melo on April 10, 1995 (Melo/Short), one of the referrals, which queries why premiums to a private health services plan qualify as a medical expense whereas premiums paid to a provincial medical or hospitalization insurance plan do not, is a question of tax policy and as such should be referred to the Legislative Policy Division.

The following comments relate to the enquiry from XXXXXXXXXX a retiree residing in the province of Alberta. As we understand from the client's letter, in July of 1994, Alberta eliminated an exemption from the payment of premiums for health care benefits which was previously granted to citizens 65 years of age and older. As a result, the client was required to remit $384 in health care premiums on behalf of himself and his spouse to the province for the six month period July-December, 1994. However, as a Federal Superannuate living in Alberta, the client applied for and received a 50% refund of the provincial health care premiums paid. The refund amounted to $192 less a deduction of $75.09 in federal income tax. The client queries whether the refunded $192 has been double taxed in that his original premium was not tax deductible and was paid for with after-tax dollars and the partial premium rebate was subject to tax deductions at source. He has also requested that he be provided with the appropriate references from the Income Tax Act (the Act).

The client has received a benefit from a former employer (in the form of a 50% refund of premiums) which is subject to taxation. As discussed in Interpretation Bulletin IT-247, where a former employer pays contributions or premiums on behalf of a pensioner to a provincial hospital or medical care insurance plan, these amounts are subject to tax. Where these amounts are paid on account of an obligation arising out of an agreement made by the former employer with the former employee (or with a union on his behalf) immediately prior to, during or immediately after the former period of employment, they are taxable (that is, included in income for income tax purposes) under paragraph 6(3)(b) of the Act. Where paragraph 6(3)(b) does not apply, the amounts are considered to be "superannuation or pension benefits" whether they are paid out of the former employer's pension funds or from general funds and as such are subject to tax in the hands of the pensioner pursuant to paragraph 56(1)(a).

The provisions of subsection 153(1) of the Act require every person paying at any time in a taxation year..."(a) salary or wages or other remuneration, (b) a superannuation or pension benefit..." to deduct or withhold from such payments an amount of income tax determined in accordance with the regulations. An income inclusion under paragraph 6(3)(b) of the Act is categorized as a payment of "salary or wages or other remuneration" and an income inclusion under paragraph 56(1)(a) of the Act is a "superannuation or pension benefit", both of which are subject to tax deductions at source in the manner prescribed by regulation.

Had the former employer not paid or reimbursed the client for 50% of the total premium expense, the client, at the end of the day, would have paid $384 from his after-tax income. The payments are made after tax as premiums paid to provincial medical or hospitalization plans do not qualify as a "qualifying medical expense" for purposes of calculating the medical expense tax credit (discussed below). However, in the case at hand, the former employer has financed the cost of one half of the required premium (by way reimbursement to the client); hence, the client is out-of-pocket a net of only $192 (his share of the required premium) plus any income tax obligations which result from the required income inclusion in respect of the former employer's payment of one half of the premium expense.

Paragraph 118.2(2)(q) of the Act provides that any premium that an individual or his or her legal representative has paid to a private health services plan for that individual, the individual's spouse or a member of the household with whom the individual is connected by blood relationship, marriage or adoption may be included as a qualifying medical expense for purposes of calculating the medical expense tax credit. The definition of a "private health services plan" is found in subsection 248(1) of the Act and paragraph (c) therein specifically excludes from the definition any plan which is established by or pursuant to a law of a province which establishes a health care insurance plan in respect of which the province receives contributions from Canada for insured health services provided under the plan pursuant to the Federal-Provincial Fiscal Arrangements and Federal Post-Secondary Education and Health Contributions Act. These comments are reflected in paragraph 65 of Interpretation Bulletin IT-519R (with a reference to Interpretation Bulletin IT-339).

M. Bisson
A/Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch