27 October 1994 External T.I. 9418125 - SAME SEX HEALTH CARE BENEFITS NOT A PHSP

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: employer provided health care coverage for same gender partner of an employee

Position TAKEN: such benefits may be provided through an employee benefit plan or an employee trust

Reasons FOR POSITION TAKEN:no change from past position

XXXXXXXXXX A. Humenuk
941812
October 27, 1994

Dear XXXXXXXXXX:

Re: Employer provided health care benefits

We are replying to your letter of July 14, 1994 requesting information on the tax treatment of health care benefits provided to a same gender partner of an employee under a plan provided by the employer.

In our conversation of September 26, 1994 (XXXXXXXXXX/Humenuk), you asked for clarification of the definition of "spouse" for the purposes of the administration of the Income Tax Act. You would also like to know how an employer could provide health care benefits for an employee's same gender partner without endangering the status of the employer's plan as a private health services plan.

Benefits received by employees by virtue of or in respect of their employment are included in income unless such benefit is specifically exempted by reason of one of the subparagraphs of 6(1)(a) of the Income Tax Act (Act). The benefit from an employer-provided dental or health care plan is exempt as long as the plan qualifies as a "private health services plan" (PHSP). A PHSP is defined, in part, in subsection 248(1) of the Act as

"(a) a contract of insurance in respect of hospital expenses, medical expenses or any combination of such expenses, or

(b) a medical care insurance plan or hospital care insurance plan or any combination of such plans ...".

The Department's position on what constitutes a PHSP is outlined in the attached Interpretation Bulletin IT-339R2 "Meaning of "Private Health Services Plan"". As stated in paragraph 4, the types of expenses which may be provided under a PHSP are limited to those which normally qualify as medical expenses for the purpose of the medical expense tax credit as defined in subsection 118.2(2) of the Act. Since a claim for the medical expense tax credit is limited to the expenses incurred in respect of an individual, the individual's spouse or a dependant of the individual within the meaning of subsection 118(6) of the Act, coverage within the same plan for anyone else would jeopardize the status of the plan as a PHSP.

It should be noted that there is no registration requirement for private health services plans under the Act. If a plan in fact meets the definition of a private health services plan found in subsection 248(1) of the Act, employer-provided benefits under the plan are excluded from the employee's income by reason of paragraph 6(1)(a) of the Act. If the plan does not fit within that definition, the tax consequences for the employee will depend on whether the plan is an employee benefit plan or an employee trust as described in the attached Interpretation Bulletin IT-502 "Employee Benefit Plans and Employee Trusts" as explained below.

For the purposes of the Act, "spouse" means persons who are legally married according to the laws of Canada and, effective with the 1993 taxation year, is extended by reason of subsection 252(4) of the Act to include a person of the opposite sex with whom the individual cohabits in a conjugal relationship. Consequently, where a health care plan provides coverage for same gender partners of employees (or anyone else whose medical expenses would not be eligible for the employee's medical expense tax credit), the plan would not be a PHSP within the meaning of subsection 248(1) of the Act.

Where an employer wishes to extend to its employees non-qualifying health care benefits as well as those which do qualify for inclusion under a PHSP, the non-qualifying benefits can be offered through a separate plan, thereby preserving the tax free status of the benefits which do qualify. However, where it is not feasible for the employer to set up two separate plans, the Department is prepared to treat the plan as two separate plans provided that the plan administrator accounts for the contributions, income and disbursements of the part of the plan which provides non-taxable benefits separately from that which provides taxable benefits. While separate employer records and separate insurance policies are not required, there must not be any cross-subsidization between the plans and the level of benefits, the premium rates, the qualifications for membership and other terms and conditions of each of the plans must not be dependent upon the existence of the other plan or plans.

If the employer's plan provides non-qualifying benefits by means of an insurance policy, the employee includes in income the value of the insurance coverage enjoyed in the year (i.e. the premium paid by the employer for that coverage). If the employer provides the benefits by way of a contribution to a trust or fund held by a third party, such as an insurer, for the payment of claims under the plan, the tax treatment will depend on whether the trust or fund is considered an "employee benefit plan" or an "employee trust" as described in the attached Interpretation Bulletin IT-502. Where the plan is an employee benefit plan, the employee will be required to include any reimbursement in income in the year of the reimbursement. The employer's deduction for contributions to the plan is restricted to the amount which has been included in the employees' income on account of benefits received from the plan. Where the plan qualifies as an employee trust and the trustee elects to be treated as such, the employee's income inclusion and the employer's deduction are determined on an annual basis.

We trust these comments explain the Department's position in this matter.

Yours truly,

P.D. Fuoco
for Director
Business and General Division
Rulings Directorate
Policy and Legislation Branch