6 February 1996 External T.I. 9532815 - PRIVATE HEALTH SERVICES PLANS

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.

									953281
XXXXXXXXXX							M. Eisner

Attention: XXXXXXXXXX

February 6, 1996

Dear Sirs:

Re: Private Health Services Plans

This is in reply to your letter of December 15, 1995 concerning the above subject in relation to same-sex spouses.

In your letter, you have set out a number of statements requesting that we confirm their validity or provide comments where we do not agree. In response to these statements, we have set out below general comments which provide more complete information on the issues with which you are concerned rather than confirming and/or commenting on each statement.

While our comments have been set out in respect of an employee, they are also applicable to a former employee who has retired and is receiving health care benefits from his or her former employer.

The Department's position on what constitutes a private health services plan is outlined in the attached Interpretation Bulletin IT-339R2 "Meaning of "Private Health Services Plan"" which has been enclosed. As you aware, the benefits that an employee receives in respect of a private health services plan (PHSP) are non-taxable.

As stated in paragraph 4 of IT-339R2, the types of expenses which may be provided under a PHSP are limited to those which qualify as medical expenses for the purposes of the medical expense tax credit as defined in subsection 118.2(2) of the Income Tax Act (the Act). Since a claim for the medical expense tax credit is limited to the expenses incurred in respect of an individual, the individual's spouse or a dependent of the individual within the meaning of subsection 118(6) of the Act, coverage within the same plan for anyone else would prevent the plan from qualifying as a PHSP.

For the purposes of the Act, a person is the spouse of an individual where they are legally married according to the laws of Canada. In addition, the definition of "spouse" for the purposes of the Act is extended by reason of subsection 252(4) of the Act to include a person of the opposite sex who cohabits with the individual in a conjugal relationship for a period of 12 months or cohabits with the individual and is a parent of a child of whom the individual is a parent. Consequently, where a health care plan provides coverage for the same gender partners of employees, the plan would not be a private health services plan as defined in subsection 248(1) of the Act and the related benefits would be subject to tax.

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. We also note that where it is not feasible for the employer to set up two separate plans, the Department is prepared to treat the arrangement as being 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 an insurance policy is experience-rated, separate experience ratings must be established for each plan.

Where two separate plans can be considered to exist pursuant to the above comments (i.e., the employee derives benefits from a PHSP and his or her same-sex partner derives benefits from a health care plan that does not qualify as a PHSP), the benefits from the PHSP would be non-taxable and the benefits in respect of the non-qualifying plan would be subject to tax.

Where a particular health care plan does not qualify as a PHSP and the plan or the non-qualifying portion thereof which has been segregated from the rest of the plan provides the benefits by means of an insurance policy, the value of the insurance coverage enjoyed in the year (i.e., the premium paid by the employer for that coverage) is shown as a taxable benefit (box 40) and as employment income (box 14) on the T4 Supplementary information slip. Where the circumstances are similar except that the employer directly reimburses the employee (self-insurance), the amount of the reimbursements is again shown as a taxable benefit (box 40) and as employment income (box 14) of the T4 Supplementary information slip. If the employer provides the benefits from a non-qualifying plan by way of a contribution to a trust or fund held by a third party (such as an insurer) for the payment of claims under the plan, the tax treatment will depend on whether the trust or fund is considered an " employee benefit plan" or an "employee trust". Where the plan is an employee benefit plan, the amount shown on the T4 Supplementary (box 14) information slip will be the amount reimbursed in the year. Where the plan qualifies as an employee trust and the trustee elects to be treated as such, the employee's income inclusion is determined on an annual basis based on the employer's contribution to the trust and is again shown on box 14 of the T-4 Supplementary.

For your further general information, we have enclosed a copy of Interpretation Bulletin IT-502 "Employee Benefit Plans and Employee Trusts" and the related Special Release.

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