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:
The tax implications when a medical insurance plan covers a common law spouse and a separated spouse.
Position:
The plan may still qualify as a private health services plan.
Reasons:
The taxpayer can have two spouses for income tax purposes. A health care plan that provides coverage for anyone whose medical expenses would be eligible for the employee's medical tax credit will qualify as a PHSP.
J. Gibbons
XXXXXXXXXX 5-971532
Attention: XXXXXXXXXX
November 8, 1997
Dear Sir:
We are replying to your letter of June 6, 1997, in which you raise several questions concerning a customer's group medical insurance plan (the "plan"). We understand that one of the customer's employees, who has spousal coverage under the plan for his separated spouse, wishes to insure his common law spouse under the same plan.
Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R3. The following comments are, therefore, of a general nature only and are not binding upon the Department with respect to any particular transaction.
The common law spouse of a separated taxpayer may be considered to be a spouse for income tax purposes if he or she meets the conditions of subsection 252(4) of the Income Tax Act (the "Act"). According to this provision, a spouse includes a person of the opposite sex who cohabits at that time with the taxpayer in a conjugal relationship and either has so cohabited with the taxpayer throughout a 12-month period ending before that time or is a parent of a child of whom the taxpayer is a parent. In addition, under subsection 252(3) of the Act, a spouse or former spouse of a particular individual includes, for purposes of certain provisions of the Act, another individual of the opposite sex who is a party to a voidable or void marriage with the particular individual. Therefore, a separated taxpayer may have two spouses for income tax purposes.
Paragraph 1 of Interpretation Bulletin IT-339R2, "Meaning of private health services plan", indicates that, for plans to qualify, amounts paid under the plan must be for one or more of the employee, the employee's spouse, and any member of the employee's household with whom the employee is connected by blood relationship, marriage, or adoption. Since a taxpayer can have two spouses for income tax purposes, it is our opinion that the fact that contributions are made in respect of both a separated spouse (under a court order) and a common-law spouse would not jeopardize a private health services plan (PHSP) that otherwise qualifies. Accordingly, the comments in IT-339R2 relating to the treatment of contributions to a PHSP would apply, i.e., the employer would be allowed to deduct, as a business outlay or expense, the contributions made, and the employee would not have to include in income any part of the contributions made, as a taxable employee benefit.
As regards the tax implications to the separated spouse, if the premiums are paid by the other spouse's employer for his or her coverage, it is our view that there would be no tax consequences to the separated spouse as a result of such coverage. However, if premiums were paid by the employee for the benefit of his or her separated spouse, subsection 56.1(2) of the Act might apply. This provision deems payments made to third parties to be allowances paid on a periodic basis and also deems a taxpayer to have discretion as to the use of the amount paid to the third party, for purposes, inter alia, of the definition of "support amount" in subsection 56.1(4) of the Act. In determining whether the premiums would have to be included in the separated spouse’s income, the date of the court order would have to be considered, since the new rules regarding the tax treatment of support payments generally apply to payments required to be made under agreements or orders made after April 1997. The effect of these new rules is that there is no income inclusion or deduction in respect of payments made for the support of children. However, spousal support continues to be included in the income of the recipient and deductible from the income of the payer.
If the plan were to extend coverage to an ex-spouse, it would not meet the condition in paragraph 1 of IT-339R2 and would, therefore, not meet the definition of private health services plan. In such circumstances, the plan would likely be considered an "employee benefit plan" or an "employee trust." In this regard, we refer you to Interpretation Bulletin IT-502, which contains a detailed discussion of the tax treatment of these types of arrangements.
We trust that these comments will be of assistance.
Yours truly,
C. Chouinard
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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