11 February 1997 External T.I. 9638785 - PRIVATE HEALTH SERVICE 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.

		963878
XXXXXXXXXX	M. Eisner

Attention: XXXXXXXXXX

February 11, 1997

Dear Sirs:

Re: Private Health Services Plans

This is in reply to your letter of November 4, 1996 concerning the above-noted subject.

The situation which has been set out in your letter appears to relate to an actual set of circumstances and involves proposed transactions. Confirmation of the tax consequences of proposed transactions will only be provided in response to a request for an advance income tax ruling following a review of the relevant facts and documentation. The procedures for requesting an advance income tax ruling are set out in Information Circular 70-6R3. We are, however, prepared to provide you with the following general comments.

Our Comments

Your concern relates to a type of situation where an employer wishes to establish a private health services plan (PHSP) as defined in subsection 248(1) of the Income Tax Act (the Act), under which employees will be reimbursed by their employer for qualifying dental expenses. However, the employer is not a party to any collective bargaining agreement and does not have a written employment service contract with its employees. With respect to these circumstances, you have referred to paragraph 7 of Interpretation Bulletin IT-339R2 and asked what would need to be included in a "contract of service" in order to be considered a valid PHSP arrangement. You are interested in establishing a PHSP so that the employees' reimbursed dental expenses will not give rise to taxable benefits by virtue of subparagraph 6(1)(a)(i) of the Act.

The "contract of service" or "employment contract" in paragraph 7, is a reference to a contract between an employer and employees which sets out the terms and conditions of the employees' employment. Although it is not necessary for a contract of service to be in writing, this is certainly preferable to clearly set out the terms of employment. Furthermore, it must be clearly established that an employer has a "plan" under which there is a contractual obligation to make such reimbursements to employees. In this regard, an employer must provide its employees with the details of the plan and specifically indicate the extent to which reimbursements will be provided. Other comments in the bulletin including those in paragraph 4, will be helpful in setting up a PHSP.

We trust our comments will be of assistance to you.

Yours truly,

John F. Oulton
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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