11 June 1987 Income Tax Severed Letter

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.

Revenue Canada Taxation

Head Office

XXXX

R.B. Day (613) 957-2136

June 11, 1987

XXXX

Re: Private Health Securities Plan Obligations under Employment Contracts

We are writing in reply to your letter of March 31, 1987, to Mr. Fitz-Clarke of the Vancouver District Office wherein you requested our opinion regarding the interaction of paragraph 6(1)(a) and subsection 110(6) of the Income Tax Act (the "Act") relative to the comments in paragraphs 7 and 9 of IT-339R .

It is your view that where a written contract of employment provides for dental coverage by direct employer payments to a dentist to cover an employee's incurred costs, such payments would not constitute a taxable benefit to the employee under paragraph 6(1)(a) of the Act because the arrangement is, in essence, a Private Health Services Plan ("PHSP") as defined in paragraph 110(8)(a) of the Act.

Paragraph 7 of IT-339R makes the general statement that payments of the type described above "may" come within the definition of a PHSP provided the employer has a contractual obligation to make such a payment Whether or not such an obligation exists would involve a finding of fact in each particular situation. As a consequence we are reluctant to express an opinion about a contractual arrangement without having access to specific contracts and other documentation concerning the arrangement. However, it would appear from the limited information submitted, that the arrangement described above may qualify as a PHSP in accordance with paragraph 7 of IT-339R .

We would also comment that where the agreed consideration for a PHSP is regarded as being the employees' covenants as found in the contract of service between the employer and the employee, it is our view that the arrangement should cover all employees (or all employees within a specific employee category) in one plan with the same coverage extended to each employee. Furthermore, we would advise that payments to or on behalf of employees pursuant to a PHSP must be in respect of defined risks described in the plan or relevant agreement; any "ex gratia" payments (i.e. expenses not specified in the plan) by the employer would be a taxable benefit to the employee. Finally, subsection 110(6)(b) of the Act would prevent an employee from deducting under paragraph 110(l)(c) of the Act any medical expense for which he has been or is entitled to be reimbursed.

Yours truly,

for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch