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.
whether health care spending account is a phsp
it is a plan of insurance restricted to medical expenses as defined in the Act -in addition, the credit allocation is not derived from employee entitlement to salary or other taxable amounts
Re: Request for an Advance Income Tax Ruling
We are replying to your letters of XXXXXXXXXX in which you request an advance income tax ruling in respect of the proposed benefit plan you intend to implement for your employees.
Our understanding of the facts and proposed transactions are as follows:
1. XXXXXXXXXX is a national member-funded association and is a registered charity. XXXXXXXXXX currently employs approximately XXXXXXXXXX people.
2. XXXXXXXXXX presently offers its employees a competitive package of employee benefits, including comprehensive coverage under a medical and dental plan.
3. XXXXXXXXXX intends to implement an additional employee health care benefit plan called the XXXXXXXXXX.
4. The plan year for XXXXXXXXXX will follow the fiscal year of XXXXXXXXXX and will run from XXXXXXXXXX.
5. Upon enrolment and at the beginning of each subsequent plan year, all employees of XXXXXXXXXX will receive an XXXXXXXXXX allocation of a specified percentage of their annual salary. For the fiscal year ending XXXXXXXXXX the specified percentage will be XXXXXXXXXX% and it will be reviewed annually. New employees will be eligible for participation in the plan when hired and will receive their XXXXXXXXXX allocation at that time.
6. Immediately prior to the initial enrolment and before the beginning of each plan year, employees may make an irrevocable election to take all or part of that year's XXXXXXXXXX allocation in cash rather than as an XXXXXXXXXX allocation.
7. Where an employee elects to receive cash in lieu of part or all the XXXXXXXXXX allocation, the additional amount will be added to salary and paid in equal instalments over the balance of the plan year and will be subject to payroll deductions for income tax, unemployment insurance premiums and contributions to the Canada Pension Plan.
8. Employees may be reimbursed by XXXXXXXXXX for eligible health related services to the extent of the available XXXXXXXXXX allocation. Eligible health related services will only encompass expenses incurred by the employee during the plan year which would otherwise have qualified as medical expenses of the employee under subsection 118.2(2) of the Income Tax Act (the Act). Eligible expenses are restricted to expenses incurred on behalf of the employee or the employee's dependants as that term is defined in subsection 118(6) of the Act.
9. At the end of each plan year, participating employees will submit their receipts for eligible medical expenses to the plan administrator. XXXXXXXXXX will reimburse the employees for XXXXXXXXXX% of the eligible costs to the extent of the balance in the XXXXXXXXXX.
10. Any unused allocation in the XXXXXXXXXX after the reimbursement of the year's expenses may be carried forward for a maximum of XXXXXXXXXX. If an employee's eligible medical expenses exceed the XXXXXXXXXX allocation for a particular plan year, such excess is not eligible for reimbursement.
11. Employees will be notified of the provisions of the proposed XXXXXXXXXX by means of a memorandum from XXXXXXXXXX, a draft copy of which was submitted to us on XXXXXXXXXX.
Purpose of the Proposed Transaction
XXXXXXXXXX wishes to enhance its employee benefit program by adding the XXXXXXXXXX as an aid in retaining its current employees and attracting future employees of the calibre required to service its members. In addition, XXXXXXXXXX is of the view that by providing these benefits through a contractual, self-administered XXXXXXXXXX, it will reduce the net cost of providing such benefits without jeopardizing the rights of the employees under the program.
You have advised and you confirm to the best of your knowledge that none of the issues involved in this ruling request is being considered by a Tax Services Office or a Tax Centre in connection with a tax return already filed and none of the issues is under objection.
Rulings Requested and Given
Provided that the above-mentioned facts and proposed transactions are accurate and constitute complete disclosure of all the relevant facts and proposed transactions, that any documentation governing the plan contains substantially the same provisions as that outlined in the draft memorandum submitted on XXXXXXXXXX and that the transaction is carried out as described herein, we rule as follows:
A. the XXXXXXXXXX will qualify as a private health services plan within the meaning of subsection 248(1) of the Act,
B. any reimbursements of medical expenses made to an employee in accordance with the terms of the XXXXXXXXXX will not be required to be included in the employee's income under any provision of the Act and
C. where an employee elects to receive a portion of the entitlement in cash rather than as an XXXXXXXXXX allocation, the cash received will be included in income from employment under subsection 5(1) of the Act.
This ruling is given subject to the general limitations and qualifications set forth in Information Circular 70-6R2 dated September 28, 1990 and the Special Release thereto dated September 30, 1992 issued by the Department of National Revenue, Taxation and is binding on the Department provided the XXXXXXXXXX is implemented on or before XXXXXXXXXX.
We trust our comments will be of assistance to you.
Business and General Division
Income Tax Rulings and
Policy and Legislation Branch
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