29 May 2000 External T.I. 2000-0018375 - PHSP-INS. FOR CARE OF DISABLED INDIVIDUALS

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: Whether an insurance plan that provides coverage related to the care of disabled individuals is a PHSP.

Position: Question of fact.

Reasons: Paragraph 4 of IT-339R2 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 (for purposes of the medical expense tax credit) under subsection 118.2(2) of the Act.

XXXXXXXXXX 	J. Gibbons
		2000-001837
Attention:  XXXXXXXXXX 

May 29, 2000

Dear XXXXXXXXXX:

We are replying to your letter of March 24, 2000, in which you requested our views on whether a taxpayer would be entitled to a medical expense tax credit for premiums paid to acquire a particular group insurance plan (the "Plan"), which is described in your letter.

As requested, we have reviewed the information concerning the Plan and have provided some comments below. However, we cannot confirm the tax implications of particular transactions unless the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R3. Thus, our comments are of a general nature only.

The Plan

1. The Plan supplements benefits available under government programs for loss of functional or cognitive abilities.

2. The Plan is available to members of an association, or employees of an organization. Coverage may be purchased for the member/employee only, or for the member/employee and his or her spouse.

3. In order for a member/employee or spouse to receive benefits under the Plan, he or she must be assessed by a health professional, the Care Coordinator, to determine if a loss of abilities has occurred. The assessment must show that the individual is either unable to perform two or more "activities of daily living" or has a "cognitive impairment."

a. "Activities of daily living" refers to certain basic daily tasks necessary to maintain a person's health and safety. A person will be considered by the insurance company to be unable to perform activities of daily living if he or she requires the physical assistance of another person to do the activities. Activities of daily living refer specifically to the following activities:

i. Bathing: The ability to wash oneself completely in a tub, a shower or by sponge bath with or without the aid of equipment.

ii. Eating: The ability to consume food that has already been prepared and made available, with or without the use of adaptive utensils. Eating does not mean the ability to prepare food.

iii. Dressing: The ability to (a) put on and take off all garments and/or any braces or artificial limbs and (b) to secure and unfasten garments or devices.

iv. Toileting: The ability, with or without the aid of equipment, to (a) get to and from the toilet; (b) get on and off the toilet; and (c) maintain a reasonable level of personal hygiene.

v. Transferring: The ability to move in and out of a chair (including a wheelchair) or bed. If a person can move with the help of equipment such as a cane, walker, crutches, grab bars or other support devices, he or she will be considered to be able to transfer positions.

b. "Cognitive impairment" refers to a loss of mental capacity and is demonstrated by a person's inability to think, perceive, reason or remember. Such impairment results in a person's inability to care for himself or herself without ongoing supervision from another person and is not due to a mental condition without an organic cause. A "mental condition without an organic cause" means neurosis, psychoneurosis, sychopathy, psychosis or a mental disorder without a demonstrable organic disease but not alzheimer's disease or senility. The determination of cognitive impairment will be made on the basis of clinical data and valid standardized measures of the particular impairments.

2. The plan of care is developed with the individual, the family and the physician. The plan of care outlines the type, frequency and duration of services required to maintain or to improve the individual's capacity and abilities. A physician's input is required before the plan of care can be approved.

3. Once the plan of care is approved, claims will be reimbursed for certain medical, social and/or personal care services outlined in the insurance plan. These include:

a. Professional, paraprofessional or skilled care provided through a home health care agency to a patient in his or her home, for example:

i. nursing services;
ii. physical therapy;
iii. speech therapy;
iv. respiratory therapy;
v. occupational therapy; and
vi. hospice/palliative care;

b. Home care related to activities of daily living, including assistance with:

i. ambulation and exercises;
ii. self-administered medications;
iii. reporting changes in the patient's condition and needs;
iv. completing appropriate records;
v. personal care;
vi. home management services;
vii. home health aid services; and
viii. other services to maintain or improve the patient's functional ability;

c. Adult day care, consisting of a group setting outside the home, with social and health-related services;

d. Respite care - providing short-term temporary relief from caregiving duties to a member of the patient's immediate family;

e. Facility care - reimbursing expenses incurred while receiving care in a long-term care or assisted-living facility;

f. Training for caregivers;

g. Emergency response system reimbursement;

h. Medical equipment reimbursement.

Our views

An amount paid as a premium, contribution or other consideration under a "private health services plan" (PHSP) in respect of the individual and/or the individual's spouse qualifies as a medical expense under paragraph 118.2(2)(q) of the Income Tax Act to the extent that the payment was not deducted by the individual as a business expense under subsection 20.01(1) of the Act. The determination of whether a plan of insurance qualifies as a "private health services plan," which is defined in subsection 248(1) of the Act, is a question fact. However, the Agency has set out its views on the issue in Interpretation Bulletin IT-339R2, "Meaning of Private Health Services Plan."

Paragraph 4 of IT-339R2 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 (for purposes of the medical expense tax credit) under subsection 118.2(2) of the Act. As a result, a plan that provides coverage for ineligible medical expenses, i.e., expenses not listed under subsection 118.2, will not qualify as a PHSP. (A description of the eligible medical expenses can be found in IT-519R2, "Medical Expense and Disability Tax Credits and Attendant Care Expense Deduction.") Thus, it should be clear from the plan documentation that particular expenses for which a plan provides coverage are described under subsection 118.2(2) of the Act. In the case of the Plan outlined in your letter, it was impossible to determine definitively which of the medical expenses covered by it were eligible and which were not since the expenses were described differently than similar medical expenses under subsection 118.2(2). In this regard, we offer the following:

1. "Professional, paraprofessional or skilled care"

Although payments to professionals may qualify as a medical expense under paragraph 118.2(2)(a), the payments must be to a "medical practitioner," "dentist," "pharmacist," "nurse," or "optometrist,". According to subsection 118.4(2), a reference to a "medical practitioner," "dentist," "pharmacist," "nurse," or "optometrist" means, for a service rendered, a person who is authorized to practice as such according to the laws of the jurisdiction in which the service is rendered. (See paragraphs 3 and 4 of IT-519R2).

Amounts paid for reasonable expenses relating to rehabilitative therapy, including training in lip reading or sign language, incurred to adjust for the patient's hearing or speech loss may qualify as medical expenses under paragraph 118.2(2)(l.3). Bill C-25 (which contains the draft legislation for the 1999 Budget proposals) includes proposed new paragraph 118.2(2)(l.9) which would add to the list of medical expenses, for 1999 and subsequent taxation years, an amount paid as remuneration for therapy administered to an individual who is eligible for the disability tax credit. The therapy must be prescribed by, and administered under the general supervision of, a medical doctor or a psychologist (in the case of a mental impairment) or a medical doctor or an occupational therapist (in the case of a physical impairment). The therapy cannot be administered by the individual's spouse nor by an individual who is under 18 years of age.

2. "Home care related to activities of daily living"

Under the Act, an amount paid for attendant care may qualify as a medical expense as follows:

a) Paragraph 118.2(2)(b) allows an individual to include, as a qualifying medical expense, remuneration paid for one full-time attendant for a patient who has a severe and prolonged mental or physical impairment. The patient on whose behalf these medical expenses are paid must be a person with a disability for whom a disability tax credit could be claimed for the taxation year in which these medical expenses were incurred if it were not for the rule described in paragraph 118.3(1)(c). The full-time attendant cannot be under 18 years of age or be the individual's spouse. (See paragraph 24 of IT-519R2.)

b) Paragraph 118.2(2)(b.1) allows an individual to include, as a qualifying medical expense, remuneration paid for attendant care in Canada of a patient who has a severe and prolonged mental or physical impairment. The claim for these expenses cannot be more than $5,000 ($10,000 if the patient died in the year). At the time the remuneration is paid, the attendant must not be under 18 years of age or be the individual's spouse. The patient must be a person with a disability for whom a disability tax credit can be claimed for the taxation year in which the attendant care is given. (See paragraph 25 of IT-519R2.)

c) Paragraph 118.2(2)(c) allows an individual to include, as a qualifying medical expense, remuneration paid for a full-time attendant for a patient in a self-contained domestic establishment in which the patient lives, provided that: (a) A medical practitioner certifies that, because of mental or physical infirmity, the patient is, and will likely continue for a prolonged period of indefinite duration to be, dependent on others for personal needs and care and, as a result, requires a full-time attendant; (b) At the time the remuneration is paid, the attendant is neither the individual's spouse nor under 18 years of age; and (c) Receipts for payments to the attendant must be issued by the payee and include, if the payee is an individual, his or her social insurance number. (See paragraph 28 of IT-519R2.)

d) Bill C-25 includes proposed new paragraph 118.2(2)(b.2) which would add to the list of eligible medical expenses, for 1999 and subsequent taxation years, amounts paid on account of remuneration to persons providing care and supervision in a group home maintained and operated exclusively for the benefit of individuals with severe mental or physical impairments who are eligible for the disability tax credit.

3. "Adult day care, consisting of a group setting outside the home, with social and health-related services."

Unless the amounts qualify as remuneration paid for attendant care, as discussed in item 2 above, it is unlikely that these amounts qualify as eligible medical expenses.

4. "Respite care, providing short-term temporary relief from caregiving duties to a member of the patient's immediate family."

Unless the amounts qualify as remuneration paid for attendant care, as discussed in item 2 above, it is unlikely that these amounts qualify as eligible medical expenses.

5. "Facility care, reimbursing expenses incurred while receiving care in a long term care or assisted living facility."

Amounts paid for the "full-time care in a nursing home" qualify as medical expenses under paragraph 118.2(2)(b) if the patient has a severe and prolonged mental or physical impairment that has been certified in prescribed form by a medical doctor. In order for nursing home expenses to be claimed on behalf of an individual under paragraph 118.2(2)(b), the individual must be eligible for the disability tax credit under subsection 118.3(1) of the Act. Paragraph 118.2(2)(b) and subsection 118.3(1) are discussed in paragraph 24 and paragraphs 2 - 10 of IT-519R2 respectively.

Amounts paid for the "full-time care in a nursing home" qualify under paragraph 118.2(2)(d) if the patient has been certified by a qualified medical practitioner to be a person who, by reason of lack of normal mental capacity is, and in the foreseeable future will continue to be, dependent on others for his or her personal needs and care. In order to make a claim under paragraph 118.2(2)(d), the patient must have a lack of normal mental capacity which makes him or her dependent on others for personal needs and care, now and in the foreseeable future. Paragraph 118.2(2)(d) is discussed in paragraph 29 of IT-519R2.

6. "Training for caregivers"

Under paragraph 118.2(2)(l.8), amounts paid for reasonable expenses to train an individual or an individual related to the individual qualifies as a medical expense if the training relates to the mental or physical infirmity of a person who is related to the individual and is a member of the individual's household or is dependent on the individual for support. Reasonable expenses do not include payments to the individual's spouse or a person under 18 years of age.

7. "Emergency response system reimbursement"

It was not entirely clear to us what this item was. However, as far as we could tell, it is unlikely that this expense is an expense that is described by one of the provisions in subsection 118.2(2).

8. "Medical equipment reimbursement"

In order to qualify as an eligible medical expense, the particular piece of equipment or device must be described by one of the provisions under subsection 118.2(2). Under paragraph 118.2(2)(m), the list of devices and equipment which qualify for purposes of the medical expense tax credit includes that which is prescribed the Income Tax Regulations. In order to be claimed under paragraph 118.2(2)(m), the device or equipment:

(i) must be prescribed by the Regulations;
(ii) is for the patient's use as prescribed by a medical practitioner;
(iii) is not described in any of the other paragraphs of subsection 118.2(2); and
(iv) meets such conditions as are applicable to its use or as to the reason for its acquisition.

(See paragraph 57 and the Appendix of IT-519R2.)

As well, subparagraph 118.2(2)(i) describes devices that qualify as medical expenses. (See paragraph 36 of IT-519R2.)

We trust that these comments will be of assistance, but we caution that they are not binding on the Canada Customs and Revenue Agency with respect to any particular plan or proposed transaction.

Yours truly,

John Oulton
for Director
Business and Publications Division
Income Tax Rulings Directorate

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