16 April 1999 External T.I. 9905435 - PRE-DETERMINED PAYMENTS

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: Payment by a PHSP of a pre-determined daily amount for accommodation.

Position: The patient must show that the accommodation expenses are actually incurred.

Reasons: Paragraphs 34, 35 and 68 of IT-519R2.

XXXXXXXXXX 990543

Wm. P. Guglich

Attention: XXXXXXXXXX

April 6, 1999

Dear Sirs:

Re: Pre-Determined Daily Amount for Accommodation for Patient and Attendant

This is in reply to your letter of February 25, 1999, requesting our interpretation of paragraph 118.2(2)(h) of the Income Tax Act (the “Act”). Specifically, you inquire whether a payment by a Private Health Services Plan (“PHSP”) of a pre-determined daily amount, for the accommodation of a patient and an attendant could qualify as a medical expense under paragraph 118.2(2)(h) of the Act. Coverage under a PHSP must be in respect of medical expenses which normally would otherwise have qualified as a medical expense under the provisions of subsection 118.2(2) of the Act.

Our Comments

Paragraph 118.2(2)(h) of the Act reads in part as follows: “...a medical expense of an individual is an amount paid for reasonable travel expenses ...incurred”. The term expenses incurred is not defined in the Act, however, in Pickle Crow Gold Mines Limited v. MNR, 55 DTC 1001, the Exchequer Court of Canada stated at page 1003: “...the words “expenses incurred by the taxpayer” have a natural and ordinary meaning of expenses either paid out by the taxpayer or which he has become liable to pay”. Consequently, to qualify under paragraph 118.2(2)(h) of the Act, the taxpayer must be liable to pay the expense and the expense must also be paid. Thus, the patient must be fully accountable to the PHSP for the per-determined daily amount and show that reasonable travel expenses are actually incurred (see paragraph 34 and 35 of IT-519R2). As stated in paragraph 68 of Interpretation Bulletin IT-519R2, Medical Expenses and Disability Tax Credits and Attendant Care Expense Deductions, the medical expenses must be supported by proper receipts.

If payments by a PHSP of pre-determined daily amounts for accommodation exceed the actual amount of the accommodation expense incurred and paid, the excess amount would not qualify as a medical expense under paragraph 118.2(2)(h) of the Act. If excess amounts are paid to an employee the plan’s status as a PHSP could be affected. Furthermore, any such excess is taxable as employment income.

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

- 2 -