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.
Principal Issues: Whether over-the-counter drugs may be covered by a PHSP
Position: Generally, no.
Reasons: Coverage under a PHSP must be in respect of hospital care or expense or medical care or expense which normally would otherwise qualify as a medical expense under 118.2(2). Generally, over-the-counter drugs would not qualify as a medical expense under 118.2(2).
XXXXXXXXXX 2010-036294
C. Tzortzis
June 29, 2010
Dear XXXXXXXXXX :
Re: PHSP and over-the-counter drugs
We are writing in reply to your email dated April 8, 2010, wherein you inquire whether the costs for over-the-counter drugs may be covered by a private health services plan (PHSP).
In your email, you state that effective January 1, 2010, many over-the-counter drugs were reclassified by Health Canada as natural health products and identified by a Natural Product Number (NPN) instead of a Drug Identification Number (DIN). You are wondering whether the loss of a DIN makes such products ineligible for coverage under a PHSP.
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of a request for an advance income tax ruling submitted in the manner set out in Information Circular 70-6R5, Advanced Income Tax Rulings, dated May 17, 2002. This Information Circular and other Canada Revenue Agency publications can be accessed on the internet at http://www.cra-arc.gc.ca. However, we are prepared to provide the following general comments, which may be of assistance.
Health Canada is the federal regulator for drug and health products. According to the Health Canada Web site at www.hc-sc.gc.ca, under the Natural Health Products Regulations, natural health products (NHPs) include vitamins and minerals, herbal remedies, homeopathic medicines, traditional medicines such as Traditional Chinese Medicines, probiotics, and other products like amino acids and essential fatty acids. Under the Regulations, the product must be safe for consideration as an over-the-counter product. NHPs are available for self care and self selection, and do not require a prescription to be sold. NHPs are assigned a NPN and homeopathic medicines are assigned a DIN-HM. Products requiring a prescription and other over-the counter drugs continue to be regulated under the Food and Drug Regulations and are assigned a DIN.
Private Health Services Plan (PHSP)
Benefits that an employee receives or enjoys in respect of, in the course of, or by virtue of an office or employment are generally taxable as income from that office or employment pursuant to paragraph 6(1)(a) of the Income Tax Act (the "Act"). However, subparagraph 6(1)(a)(i) specifically excludes benefits derived from the contributions of a taxpayer's employer to or under a PHSP.
Pursuant to the Act, a PHSP means a contract of insurance in respect of hospital expenses, medical expenses, or any combination of such expenses or a medical care insurance plan, a hospital care insurance plan, or any combination of such plans. In Interpretation Bulletin IT-339R2, Meaning of private health services plan [1988 and subsequent taxation years], the Canada Revenue Agency has set out the requirements that must be met in order for a plan to be considered a PHSP. As noted in your correspondence, paragraph 4 of that bulletin states that coverage under a PHSP must be in respect of hospital care or expense or medical care or expense which normally would otherwise have qualified as a medical expense under the provisions of subsection 118.2(2) in the determination of the medical expense tax credit (the "METC").
Over-the-counter drugs
Paragraph 118.2(2)(n) of the Act allows the costs paid for drugs, medicaments or other preparations or substances (hereinafter referred to as "drugs"):
(A) that are manufactured, sold or represented for use in the diagnosis, treatment or prevention of a disease, disorder or abnormal physical state, or its symptoms, or in restoring, correcting or modifying an organic function;
(B) that can lawfully be acquired for use by the patient only if prescribed by a medical practitioner or dentist; and
(C) the purchase of which is recorded by a pharmacist.
Based on the foregoing, only drugs that can lawfully be purchased only with a prescription qualify under this provision. Since over-the-counter drugs (including natural health products) do not lawfully require a prescription, they would not qualify for the METC under this provision. Further, the presence of a DIN on a drug product is not a deciding factor given that a DIN may be assigned to both prescription and non-prescription drugs.
Subject to certain exceptions, drugs that may lawfully be acquired without a prescription generally do not qualify for the METC. A notable exception is found in paragraph 118.2(2)(k) of the Act which provides that insulin, oxygen, liver extract injectible for pernicious anaemia and vitamin B12 for pernicious anaemia may qualify for the METC if prescribed by a medical practitioner. Also, drugs that may lawfully be acquired without a prescription may qualify for the METC under section 5701 of the Income Tax Regulations which allows the cost of a drug if the drug:
(a) is manufactured, sold or represented for use in the diagnosis, treatment or prevention of a disease, disorder or abnormal physical state, or its symptoms, or in restoring, correcting or modifying an organic function;
(b) is prescribed for a patient by a medical practitioner; and
(c) may, in the jurisdiction in which it is acquired, be lawfully acquired for use by the patient only with the intervention of a medical practitioner.
Thus, a drug that may only be acquired through the intervention of a medical practitioner (a pharmacist, for example) may qualify under section 5701 of the Income Tax Regulations even if it does not lawfully require a prescription. However, pursuant to this provision, the patient must still obtain a prescription for the particular use of the drug.
As over-the-counter drugs (including natural health products) would not generally meet the requirements of any of the above noted provisions, such drugs would not qualify for the METC and would not qualify as medical expenses covered by a PHSP.
We trust that these comments will be of assistance.
Yours truly,
G. Moore
For Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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