22 November 1995 External T.I. 9518245 - SCC EGAN & EFFECT ON SAME SEX PARTNERS HEALTH PLAN

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:

details on how to segregate one plan so that the part that qualifies as phsp will not be considered an ebp & whether SCC decision in Egan v the Queen will impact on our position

Position:

separate plans require no cross-susidization -the SCC decision upholds the OAS extended def'n of spouse so there is no reason to believe that the ITA distinction would offend the Charter

Reasons:

see above

A. Humenuk
XXXXXXXXXX 951824

Attention: XXXXXXXXXX

November 22, 1995

Dear XXXXXXXXXX:

Re: Private Health Services Plan

We are replying to your letter of July 7, 1995 concerning the provision by an employer of health care benefits which do not qualify for inclusion in a private health services plan to an employee. We apologize for the delay in our response.

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. If the benefits from both plans are provided through a single experience-rated policy, 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 charges for coverage 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).

If however, the employer provides an employee with non-qualifying 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.

You also asked whether the Supreme Court decision in the case of Egan v Canada (124 D.L.R. (4th) 609) has affected our position as stated above. While the extended definition of spouse in section 2 of the Old Age Security Act is not the same as that found in subsection 252(4) of the Income Tax Act, the two definitions are very similar insofar as each Act treats a man and a woman who are living together in a common law relationship in the same manner as individuals who are legally married. As the Supreme Court upheld the validity of restricting spousal benefits to an individual's spouse as defined in the Old Age Security Act, the decision would not appear to impact on the validity of making a similar distinction between spouses and non-spouses for the purpose of the Income Tax Act.

We trust our comments will be of assistance to you.

Yours truly,

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