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.
930537
XXXXXXXXXX J.A. Szeszycki
(613) 957-2135
August 12, 1993
Dear XXXXXXXXXX
Re: Private Health Services Plan
This is in reply to your letter of February 4, 1993 in which you requested our views with respect to the approach being considered in funding a private health services plan (PHSP). We regret the delay encountered in responding to you.
Attached to your letter was a copy of information provided to you by a benefits consultant. We have reviewed the document and would like to clarify certain of the comments contained therein. For your further information we have enclosed Interpretation Bulletin IT-339R2 —Meaning of "Private Health Services Plan"—which discusses in more detail the requirements that must be met for a plan to be considered a PHSP. Paragraph 4, for example, describes the coverage to which a plan is limited in order to maintain its status as a PHSP. Whether a particular plan qualifies as a PHSP is a question of fact that can only be determined upon examination of the actual plan documents.
Where the plan is determined to be a PHSP, and reasonable annual premiums in respect of the coverage under the plan for employees is paid by the employer, the value of the benefit derived by each individual employee so covered is not required to be included in the employee's income. In addition, any benefits received by the employee under the plan would not be included in income.
In your letter and the attached document you describe financing arrangements for the plan to include:
* Annual increases in monthly salary,
* Cash performance bonus awards, or
* Bonus awards in the form of stock exchangeable for
cash.
Whether the plan premiums are paid by the employer or the employees under the funding options described depends on the terms of the contract of employment in effect at the time the plan is established. Where the contract entitles an employee to the receipt of additional income, as your letter appears to suggest, in a form as described above, which, when received, is required to be included in income, any arrangement to use those funds to finance PHSP premiums would constitute an employee contribution and would not reduce the amount required to be included in income under sections 5 and 6 of the Income Tax Act. In order to be considered employer-funded, it must not diminish the compensation arrangement to which the employer is contractually committed. This message does not come through clearly in the information you received from the consultant.
We hope the above comments and the bulletin will assist you in formulating the plan you have in mind. Once you have developed an actual plan proposal, if you would like to request an advance income tax ruling, you may wish to submit the proposal to this Department using the procedures outlined in Information Circular 70-6R2 dated September 28, 1990 as updated by Special Release dated September 30, 1992, which are also attached.
Yours truly,
P.D. Fuoco for Director Business and General Division Rulings Directorate Legislative and Intergovernmental Affairs Branch
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© Her Majesty the Queen in Right of Canada, 1993
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© Sa Majesté la Reine du Chef du Canada, 1993