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: Subsection 20.01 of the Income Tax Act (the "Act") sets out rules for the deduction of PHSP premiums payable by a proprietor in respect of himself or herself, his or her spouse and members of his household. Paragraphs 20.01(2)(c) and (d) of the Act set out limitations concerning the deduction. Paragraph 20.01(2)(c) sets out a formula but is subject to paragraph 20.01(d) of the Act. Paragraph 20.01(2)(d) of the Act refers to one of more persons with whom the individual (the proprietor) deals at arm's length and are described in subparagraph 20.01(2)(b)(i) of the Act. Do the persons include a part-time employee?
Position: No
Reasons: Subparagraph 20.01(2)(b)(i) of the Act refers to certain persons employed on a full-time basis.
XXXXXXXXXX 992486
M. Eisner
November 16, 1999
Dear Sir/Madam:
Re: Private Health Services Plan
Your letter of September 13, 1999, which was addressed to the XXXXXXXXXX Tax Services Office and concerns the above-noted subject, has been referred to us for reply.
You have indicated that your client is a chiropractor who employs his wife and two daughters in his professional practice. One daughter is over 18 and the other daughter is under 18. In addition, he has one part-time employee who works three days every week.
With respect to the above scenario, you have referred to page 21 of the Business and Professional Guide which explains the calculation for self-employed persons. The comments on that page refer to a set of circumstances where there is a period in the year when you had no employees or when your insurable arm's length employees represent less than 50% of all of the insurable persons in your business. With respect to this set of circumstances, a proprietor is permitted to claim the lesser of two amounts. The first amount is determined pursuant to the formula (A/365) x (B + C). The result pursuant to the formula in respect of the above circumstances is $XXXXXXXXXX (365/365 x ($XXXXXXXXXX x 3) + ($XXXXXXXXXX x 1). The determination of that amount or the details of the formula is not at issue. Your concern relates to the second amount which, if you had one eligible employee, would be $XXXXXXXXXX.
You have asked us for our comments on the above result.
In order to determine the tax consequences of an actual situation, it is necessary to review all the relevant facts and documentation. However, we are prepared to provide the following general comments on your situation.
Essentially, the guide provides an example based on the legislative rule in section 20.01 of the Income Tax Act (the "Act"). The formula described above is set out in paragraph 20.01(2)(c) of the Act. However, the amount determined under that paragraph is subject to paragraph 20.01(2)d) of the Act. This paragraph provides that "where ... one or more persons with whom the individual deals at arm's length are described in subparagraph 20.01(b)(i) in relation to the particular period." Subparagraph 20.01(2)(b)(i) of the Act refers to certain persons "employed on a full-time basis." It follows that paragraph 20.01(2)(d) of the Act is not a relevant consideration with respect to the above situation as there is no full-time employee who deals at arm's length with the chiropractor. Accordingly, it is the formula set out in paragraph 20.01(2)(c) of the Act that is relevant in determining the amount that is deductible by the chiropractor.
We trust that our comments are of assistance.
Yours truly,
John Oulton
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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