26 May 1998 External T.I. 9807655 - PHSP - COUNSELLING FEES

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:

1) Whether a "parenting benefit" is an eligible expense for a PHSP,
2) If not, whether the plan ceases to qualify as a PHSP,

3) If yes to 2), whether contributions by employer are to be included in employee’s income and to what extent, and whether payment out of the plan are taxable and to what extent.

Position:

1) Fees for parenting counselling are not an eligible expenses,
2) The plan ceases to qualify as a result of the payment of non-eligible expenses (unless for the PHSP part of the plan if there is separate accounting as provided in IT-85R2 par. 4)

3) Contributions to the plan by the employer are not employment income. However, all payments received by the employee out of the plan are employment income in the year of receipt.

Reasons:

1) fees to be reimbursed include fees payable to persons that do not qualify as medical practitioners. Therefore, these fees are not medical expenses as defined in subs. 118.2(2),

2) subsection 248(1) requires that to qualify, the PHSP reimburses eligible medical expenses only. The payment of non-eligible expenses will disqualify the plan.

3) clause 6(1)(a)(ii) and paragraph 6(1)(g) of the Act.

	.	980765
XXXXXXXXXX 	N. Mondou, M.Fisc.
(613) 957-8961

Attention: XXXXXXXXXX

May 26, 1998

Dear Sir:

Re: Expenses eligible for reimbursement from a Private Health Services Plan

This is in reply to your letter dated March 18, 1998, in which you requested our views with respect to the addition of a “parenting” benefit to benefits already granted under a private health services plan (“PHSP”). More particularly, this benefit will cover fees of a statutory regulated health care or teaching professional, and any other individual or organization recommended or approved by a commercial employee counselling service, to provide parenting training.

You wish to know if the parenting benefit will qualify as an eligible expense for a PHSP and, if not, whether the plan will cease to qualify as a PHSP.

If the plan ceases to qualify, you wish to know whether:

a) the premiums paid by the employer to the plan will continue to be excluded from the employee’s taxable income, and whether the exclusion will apply to the whole contribution or only a part of it;

b) the expenses reimbursed to the employee under the plan will continue to be excluded from the employee’s taxable income, or whether the parenting expense, alone, would be included in the employe’s taxable income..

If the plan does not cease to qualify, you wish to know whether the addition of the “parenting” benefit would have additional tax implications for the plan.

Our comments

The situation outlined in your letter involves an actual fact situation. To the extent that it relates to a proposed transaction, assurance as to the tax consequences of such transaction will only be given in the context of an advance income tax ruling. The procedures for requesting an advance income tax ruling are outlined in Information Circular 70-6R3 dated December 30, 1996, issued by Revenue Canada. However, we offer the following general comments.

As stated in paragraph 4 of Interpretation Bulletin IT-339R2 (“Meaning of ‘private health services plan’”), coverage under the plan must be in respect of hospital care or expense or medical care or expense which normally would otherwise qualify as a medical expense under the provisions of subsection 118.2(2) of the Income Tax Act (the “Act”) in the determination of the medical expense tax credit.

Paragraph 118.2(2)(a) of the Act states that a medical expense of an individual is an amount paid “to a medical practioner, dentist or nurse or licensed private hospital in respect of medical or dental services”. Specifically, where a service is rendered, the terms “medical doctor”, “medical practitioner”, “dentist”, “pharmacist”, “nurse” or “optometrist” refer to persons authorized to act as such under the laws of the jurisdiction in which the service is rendered. For instance, medical practitioners can include a therapeutist (or therapist), depending on the applicable province or jurisdiction.

In the situation you describe, fees reimbursed may include fees paid to persons that are not authorized by law to act as such, i.e. that are not medical practitioners. Therefore, these fees would not qualify as a medical expense. Consequently, the payment of such non-medical expenses out of the PHSP would disqualify the plan with the result that the trust would lose its status as indicated in paragraphs 3 and 4 of Interpretation Bulletin IT-85R2 (“Health and welfare trusts for employees”).

Once the plan ceases to be a PHSP, the tax treatment that is applicable to employee benefit plans will apply to the whole plan. Consequently, as provided by clause 6(1)(a)(ii) of the Act, contributions by the employer to the plan will not be included in the income of the employee. However, all amounts received out of or under the plan by the employee will be included in the employee’s employment income, by application of paragraph 6(1)(g) of the Act, unless they are specifically excluded by that paragraph (those exclusions are not relevant to the situation you describe). As a result, the amount of medical expenses reimbursed under the plan will be included in the calculation of the employee’s employment income. On the other hand, the employee may claim a medical expense tax credit with respect to the medical expenses that qualify under subsection 118.2(2) of the Act and are reimbursed under the plan.

You will find more details with respect to the taxation of the amounts received under the plan in paragraphs 6 to 10 of Interpretation Bulletin IT-502 (“Employee benefit plans and employee trusts”).

Finally, we wish to bring to your attention that, as stated in paragraph 4 of Interpretation Bulletin IT-85R2, if contributions, income and disbursements of the part of the plan that is a PHSP are separately identified and accounted for, the tax treatment applicable to PHSPs will apply to that part of the plan.

We trust that these comments are of assistance.

Yours truly,

P. Spice
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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