2 December 1999 External T.I. 9928335 - 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: Whether a particular plan of paying employees their medical expenses can qualify as a private health services plan (PHSP).

POSITION: General comments on self-administered PHSPs

Reasons: The taxpayer has submitted an actual plan which can only be dealt with as an advance income tax ruling.

XXXXXXXXXX 992833
J. E. Grisé
December 2, 1999

Dear Sir:

Re: Private Health Services Plan

This is in reply to your letter of October 19, 1999, as to whether or not a particular self-administered plan could qualify as a private health services plan (PHSP).

We are not prepared to comment on the specific plan described in your letter except by way of an advance income tax ruling. Should you wish to request such a ruling, please refer to Information Circular 70-6R3 for the procedure to be followed. Although we are unable to provide any opinion in respect of the specific plan described in your letter, we have set out some general comments which may of some assistance.

Our comments assume that your professional corporation is carrying on a professional practice. In this respect, please refer to paragraph 1 of interpretation bulletin IT-189R2, Corporations Used by Practising Members of Professions.

An arrangement where a corporate employer reimburses its employees for the cost of medical expenses or hospital care may come within the definition of "private health services plan" in subsection 248(1) of the Income Tax Act (the Act). Where an individual, who is both a shareholder and an employee, receives a benefit under a PHSP and equivalent benefits are not available to all the employees, the individual is generally considered to be in receipt of a taxable shareholder benefit under subsection 15(1) of the Act. Contributions made by the corporate employer to or under a PHSP on behalf of the shareholder are not deductible by the corporate employer.

On the other hand, when equivalent coverage under a PHSP services plan is extended to all employees, including the employees who are shareholders, the benefit provided to the employee-shareholders from such coverage is normally considered to be an employment benefit rather than a shareholder benefit. Similarly, when all employees of a corporation are shareholders and it is reasonable to conclude, based on the particular facts of the situation, that the PHSP coverage has been provided as part of a reasonable remuneration package, the benefit from such coverage is also considered to be an employment benefit rather than a shareholder benefit. In such a case, the benefit is not included in the employee-shareholders' income by reason of the exclusion in subparagraph 6(1)(a)(i) of the Act, and the corporate employer is entitled to a deduction in respect of the contributions made for such coverage, subject to any limitations imposed under the Act.

Interpretation bulletin IT-339R2, Meaning of "Private Health Services Plan", discusses the criteria that must be met for a particular arrangement to qualify as a PHSP. Paragraph 3 of IT-339R2 indicates that one of the requirements of a PHSP is that it must be in the nature of insurance. Furthermore, as indicated in paragraph 4 of IT-339R2, the PHSP coverage must be for hospital care or expense or medical care or expense which normally would otherwise have qualified as a medical expense under subsection 118.2(2) of the Act. In this respect, please refer to Interpretation Bulletin IT-519R2, Medical Expense and Disability Tax Credits and Attendant Care Expense Deduction.

We hope our comments are helpful.

Yours truly,

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

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