8 December 1998 External T.I. 9827665 - PRIVATE HEALTH SERVICES 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: Is a "penile implant" an eligible medical expense under a PHSP ?

Position: NO

Reasons: Not prescribed

XXXXXXXXXX 	C. Tremblay
		982766
Attention: XXXXXXXXXX 

December 8, 1998

Dear Madam

Re: Private Health Services Plan (“PHSP”)

This is in reply to your letter of October 23, 1998, wherein you asked whether a “penile implant” is an eligible medical expense under a PHSP and, if not, whether the plan itself would cease to qualify as a PHSP and the extent to which expenses out of the plan would be taxable to the employees.

Our Comments:

Coverage under a PHSP must be in respect of hospital care or expenses or medical care or expenses which would normally otherwise have qualified as a medical expense under the provisions of subsection 118.2(2) of the Act in the determination of the medical expense tax credit. If a plan provides coverage for expenses other than those as described in subsection 118.2(2) of the Act and such expenses are not medical expenses within the ordinary meaning of that term, the plan will not qualify as a PSHP. Further, if the plan is not a PHSP, the amount paid to employees as a reimbursement of medical or dental expenses will be included in their income as employment income. We refer you to Interpretation Bulletin IT-339R2, Meaning of Private Health Services Plan and Interpretation Bulletin IT-519R2, Medical Expense and Disability Tax Credits and Attendant Care Expense Deduction, copies, enclosed.

If an employer sponsored plan which purports to be a PHSP is discovered to contain elements which would disqualify the plan, the first course of action will always be to discuss with the plan administrator a course of action, including modifications as required, which will allow the plan to maintain its tax-exempt status.

Where an employer wishes to extend to its employees non-qualifying benefits as well as those which do qualify, the non-qualifying benefits can be offered through a separate plan, thereby preserving the tax free status of the benefits which do qualify for inclusion in a PHSP. 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.

In order for the cost of a device to qualify as a medical expense, the device or equipment must be described either in specific provisions of subsection 118.2(2) of the Act or section 5700 of the Regulations. A penile implant is neither specifically nor generally referred to in any of the paragraphs of the subsection or in the Regulation. Consequently, the cost of such device or equipment does not qualify as an eligible medical expense.

We suggest that either you or the manufacturer of the device consider contacting the Department of Finance, since that Department is responsible for selecting devices to be added to the Regulations. Brochures and specific information on the device should be sent to the Department of Finance Tax Policy Branch, L’Esplanade Laurier, 140 O’Connor Street, Ottawa, Ontario, K1G 0G5.

We trust our comments will be of assistance to you.

Yours truly,

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

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