8 April 2004 External T.I. 2004-0058331E5 - 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.

Principal Issues:	Does the health services plan described herein qualify as a
		"private health services plan"?

Position: General comments provided.

Reasons:	The determination is a question of fact that can only be made
		in the context of an advanced tax ruling request.

Bob Naufal, CMA
XXXXXXXXXX (613) 957-2744
2004-005833
April 8, 2004

Dear XXXXXXXXXX:

Private Health Services Plan

We are writing in response to your letter dated January 23, 2004, wherein you asked if the plan described therein qualifies as a "private health services plan" ("PHSP") as defined in subsection 248(1) of the Income Tax Act (the "Act"). The hypothetical plan contains the following terms:

? The plan, formed as part of the employment contract of each employee, is available to each employee commencing on the first day of the fourth month of employment.

? Each employee will earn a credit of $300 per month of employment in a "health benefit pool" (the "pool").

? Credits remain in the pool until used or until 24 months has elapsed, whichever comes first. The pool balance will not exceed $7,200 per employee and will be forfeited upon cessation of employment.

? Payments from the pool will be used solely to reimburse employees for amounts paid for qualifying medical expenses, as defined in subsection 118.2(2) of the Act, in respect of the employee, the employee's spouse, or a dependent of the employee. In this regard, employees must submit their medical expenses to the employer for approval. The payments from the pool will be applied to the oldest credits available in the pool.

? The plan is not a health spending account offered under a flexible benefit plan as described in Interpretation Bulletin, IT-529 Flexible Employee Benefit Plans, nor a health and welfare trust as described in Interpretation Bulletin, IT-85R2, Health and Welfare Trusts for Employees.

Our Comments

Written confirmation of the tax consequences inherent in a particular transaction or series of transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R5. Notwithstanding the foregoing, we are prepared to provide the following general comments.

A PHSP is defined in subsection 248(1) of the Act as a contract of insurance in respect of hospital expenses, medical expenses or any combination of such expenses, or a medical care insurance plan or hospital care insurance plan or any combination of such plans. A plan in the nature of insurance, in this respect, must contain the following basic elements:

(a) an undertaking by one person,

(b) to indemnify another person,

(c) for an agreed consideration,

(d) from a loss or liability in respect of an event,

(e) the happening of which is uncertain.

An arrangement where an employer reimburses its employees for medical or hospital expenses may come within the definition of a PHSP where the employer is required by the employment contract to pay such expenses. For more information in this regard, please refer to Interpretation Bulletin IT-339R2, Meaning of "Private Health Services Plan".

With respect to the plan described above, we cannot provide any definitive comments without reviewing all of the facts and documentation including the employment contract, and any other documents pertaining to the plan. Such a review would normally only be undertaken in the context of an advance income tax ruling request.

We trust our comments will be of some assistance.

Yours truly,

Wayne Antle, CGA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate