Private Health Services Plan

Administrative Policy

26 January 2021 External T.I. 2020-0857841E5 - HCSA

further COVID-related extension of the period for carrying forward unused HCSA credits

In 2020-0846751E5, CRA noted that the terms of a health care spending account (“HCSA”) would, in most cases, comply with IT-529, which provides that an HCSA can permit the carry-forward of either unused credits or eligible medical expenses (but not both) for a period not exceeding 12 months without generally disqualifying the HCSA from being a private health services plan (“PHSP”), for purposes of the exemption in s. 6(1)(a)(i). CRA further announced in 2020-0846751E5:

In these extraordinary [COVID] circumstances, a HCSA that qualifies as a PHSP and which has unused credits expiring between March 15 and December 31, 2020, could temporarily permit the carry forward of those unused credits for a … period of up to six months [which] would generally be considered reasonable and would not, in and of itself, disqualify the HCSA from being a PHSP.

In generally extending these periods, CRA now stated:

In light of the severity of the second wave of the COVID-19 pandemic, the CRA will allow a HCSA that qualifies as a PHSP and which has unused credits expiring between March 15, 2020 and March 16, 2021, to temporarily carry forward those unused credits for a period of up to 12 months. This will allow members to access services that are restricted during the COVID-19 pandemic and would not, in and of itself, disqualify the HCSA from being a PHSP. However, since a HCSA must involve a reasonable element of risk to qualify as a PHSP, it is our view that any further extension of the temporary carry-forward period beyond 12 months, would likely disqualify the HCSA from being a PHSP.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(a) - Subparagraph 6(1)(a)(i) extension during COVID of the period for carrying forward unused HCSA credits 275

2 June 2020 External T.I. 2020-0847081E5 F - Compte de frais médicaux – période de report

during COVID-19, unused HCSA credits can be carried forward for up to an additional 6 months

Due to the COVID-19 pandemic, plan members of a health care spending account (“HCSA”) may not be able to incur eligible medical expenses or use the credits allocated to the HCSA before they expire, so that they will be forfeited. The terms of the HCSA would in most cases comply with IT-529, which provides that a HCSA can permit the carry-forward of either unused credits or eligible medical expenses (but not both) for a period not exceeding 12 months without generally disqualifying the HCSA from being a private health services plan. CRA stated:

As a result of these extraordinary circumstances, it has been agreed that an HCSA that qualifies as a PHSP and which has unused credits expiring between March 15 and December 31, 2020, can temporarily permit the carry forward of those unused credits for a reasonable period to allow plan members to access services that were otherwise restricted during the COVID-19 outbreak. A carry-forward period of up to six months would generally be considered reasonable and would not, in and of itself, disqualify the HCSA from being a PHSP.

25 May 2020 External T.I. 2020-0846751E5 - HCSA unused credits

relaxation of 12-month carryforward limitation in IT-529 during COVID-19

Due to the curtailment of services during the COVID-19 pandemic, plan members of a health care spending account (“HCSA”) may not be able to use the credits allocated to the HCSA before they expire, so that they will be forfeited. Could the HCSA carry forward the unused credits expiring during the pandemic for a reasonable period?

CRA first noted that the three general models of HCSAs are:

1. Use it or lose it model – the HCSA does not permit the carry forward of unreimbursed eligible medical expenses or unused credits
2. Carry-forward of credits – the HCSA permits the carry forward of unused credits to the next plan year (i.e., a period not exceeding 12 months)
3. Carry-forward of expenses – the HCSA permits the carry forward of unreimbursed eligible medical expenses to the next plan year (i.e., a period not exceeding 12 months).

CRA then stated:

[W]e acknowledge that employees may not have been able to use the amounts in their HCSAs because of the restrictions placed on many services during the current COVID-19 outbreak. In these extraordinary circumstances, a HCSA that qualifies as a PHSP and which has unused credits expiring between March 15 and December 31, 2020, could temporarily permit the carry forward of those unused credits for a reasonable period to allow members to access services that were otherwise restricted during the COVID-19 outbreak. A carry-forward period of up to six months would generally be considered reasonable and would not, in and of itself, disqualify the HCSA from being a PHSP. This applies to the three general models of HCSAs as described by you.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(a) - Subparagraph 6(1)(a)(i) unused HCSA credits can be carried forward for up to an additional 6 months during COVID-19 183

24 January 2019 External T.I. 2016-0651291E5 - Revised PHSP position - Self-insured plan

measuring compliance with the 90% METC-eligible expense test

For insured and self-insured private health services plans (PHSPs), what are the tax consequences if not all or substantially all of the actual amounts paid under the plan are for medical expenses that are eligible for the medical expense tax credit (METC) – and do different considerations apply to a self-insured health care spending accounts (HCSA) which sets a ceiling on the amounts that can be claimed under the plan? CRA stated:

An insured plan (employer pays premiums under a contract of insurance) will generally be considered to be a PHSP if all of the expenses covered under the plan are medical expenses or connected expenses, and “all or substantially all” (generally 90% or more) of the premiums paid under the plan relate to medical expenses that are eligible for the METC. The actual benefits paid to employees in the year are not considered … .

As an example, CRA indicated that an insurance plan would meet the above test notwithstanding that only 88% of the benefits paid were METC-eligible if over 90% of the premiums paid related to coverage for METC-eligible expenses.

In the case of a self-insured plan, the test is one of whether all or substantially all of the benefits paid to all employees in the calendar year are for METC-eligible expenses. The employees’ allocation of the ceiling amount to the various expense categories is not considered, so that in the HCSA example, if the portion of the benefits paid in the year for METC-eligible benefits was, say, 92%, it would not matter that the total ceiling amounts allocated to METC-eligible expenses was only 80%. In the rare case where each HCSA was determined to be a separate plan, this same test would be applied on a plan-by-plan basis.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(a) - Subparagraph 6(1)(a)(i) employee allocated ceiling amounts do not affect application of 90% METC-eligible expense test where a self-inusred plan 211

22 January 2019 External T.I. 2016-0645581E5 - Health and welfare trusts (HWTs)

extension to non-employees/employee or union funded plan/requirements for rehab plan

CRA indicated that a health and welfare trust (“HWT”) which is jointly established by a union and multiple employers, can provide benefit coverage to non-unionized employees of participating employers, retired employees, and individuals who are not employees (i.e., dependants or survivors of current or retired employees where the underlying plan (i.e., a group sickness or accident insurance plan (“GSAIP”), a private health services plan (“PHSP”), or a group term life insurance policy (“GTLIP”)) allows for the provision of benefit coverage to such individuals – although a GTLIP may only provide benefit coverage to current and former (including retired) employees.

Although Folio S2-F1-C1 indicates that a trust funded only with contributions made by employees or an employee union would not qualify as a HWT, there is no explicit requirement that an employer be legally obligated to make contributions in respect of each plan or policy administered by a HWT. Accordingly:

[W]here is it established that retired employees may be provided benefit coverage through a GSAIP, PHSP, or GTLIP, and none of the participating employers have a legal obligation to pay any premiums or contributions in respect of the particular plan or policy, it would appear permissible for a HWT to administer such a plan or policy provided that the trust also administers other employer-funded plans or policies.

A HWT may administer a plan that offers drug and alcohol rehabilitation services, provided the plan qualifies as a PHSP, which entails a requirement inter alia that substantially all of the premiums paid under the plan relate to the coverage of medical expenses that are eligible for the medical expense tax credit.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(a) - Subparagraph 6(1)(a)(i) HWT can administer a plan that is funded only with union or employee contributes where it also has employer-funded plans 454

12 December 2018 External T.I. 2017-0718661E5 - Private health services plan

coverage for employee's U.S. medical expenses would qualify if they were substantially METC-type expenses

The purpose of a Blue Cross and Blue Shield insurance plan (XXXXXXXXXX Blue Cross plan is to reimburse an employee for certain medical and health care costs the employee incurs while in the U.S. CRA stated:

[A] plan is a PHSP, amongst other conditions, if ‘all or substantially all’ of the premiums paid under the plan relate to medical expenses that are eligible for the medical expense tax credit (METC). “All or substantially all” generally means 90% or more.

… Folio S1-F1-C1 … states that, notwithstanding several exceptions, “eligible medical expenses are not restricted to those paid in Canada or for medical services provided in Canada”.

Whether ‘all or substantially all’ of the premiums paid under the … plan relate to medical expenses that are eligible for the …METC … is a question of fact and can only be determined by the insurer of the plan.

Words and Phrases
substantially all
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(a) - Subparagraph 6(1)(a)(i) coverage for U.S. expenses of METC type generally eligible 115

14 September 2017 Roundtable, 2017-0703871C6 - CPA Alberta 2017 Q9: PHSP for owner-managers

a self-insured health care spending account (“HCSA”) for a sole employee-shareholder likely will not qualify as a private health services plan

Provided that an employee (who is also a shareholder) is active in the business of a corporation whose only employees are also shareholders, and the benefits under the corporation’s private health services plan are reasonable and consistent with the benefits that would be offered to an arm’s length employee performing similar services, would the benefits be considered to be derived from the individual’s employment and in respect of a private health services plan? CRA responded:

…IT-529[, para. 16 notes] … “[I]n order for a health care spending account to qualify as a plan of insurance, there must be a reasonable element of risk. …[If] there is little risk that the employee will not be reimbursed for the full amount allocated to that employee annually, then the arrangement is not a plan of insurance and therefore, not a private health services plan.” In a situation where a corporation provides a self-insured HCSA for its only employee who is also its sole shareholder (sole employee-shareholder), it is likely that the sole employee-shareholder would be reimbursed for the full amount allocated to him or her annually.

…[R]egardless of whether a HCSA qualifies as a PHSP, a sole employee-shareholder who receives benefits out of the HCSA in his or her capacity as a shareholder is required to include such benefits in his or her income under subsection 15(1) … .

[The] general presumption that a sole employee-shareholder receives a benefit or an allowance in his or her capacity as a shareholder … may not apply if the benefit or allowance is comparable (in nature and amount) to benefits and allowances generally offered to non-shareholder employees of similar-sized businesses, who perform similar services and have similar responsibilities.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(a) - Subparagraph 6(1)(a)(i) sole employee-shareholder unlikely to qualify for PHSP 103

May 2017 CPA Alberta Roundtable, ITA Q.9

private health service plan rules generally are not available for a sole shareholder-employee

A small business only having employee(s) who are also shareholder(s), establishes a notional health care spending account(s) (a type of “private health services plan” under s. 248(1)) under which the corporation administers the accounts for its employee(s) as part of their contract(s) of employment. Would the benefits be in respect of a private health services plan? CRA responded:

[A]s noted in … IT-529 … “[I]n order for a health care spending account to qualify as a plan of insurance, there must be a reasonable element of risk. For example, if the plan or arrangement is such that there is little risk that the employee will not be reimbursed for the full amount allocated to that employee annually, then the arrangement is not a plan of insurance and therefore, not a private health services plan.” In a situation where a corporation provides a self-insured HCSA for its only employee who is also its sole shareholder (sole employee-shareholder), it is likely that the sole employee-shareholder would be reimbursed for the full amount allocated to him or her annually. …

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 15 - Subsection 15(1) general presumption that employee-shareholder receives health care spending account benefits as shareholder 128
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(a) - Subparagraph 6(1)(a)(i) HCSA for sole shareholder-employee unlikely to operate as insurance plan 200

8 December 2014 External T.I. 2014-0543891E5 F - Régime privé d'assurance-maladie

CRA willing to treat a flex plan as being bifurcated into a PHSP and non-PHSP if medical expense portion is recorded separately

In the course of a general discussion of a flex plan, CRA stated:

Where a plan or arrangement covers expenses other than medical expenses, the plan or arrangement is not eligible as a PHSP. However, we accept that where the employer establish a separate plan for medical expenses so that the plan covers those medical expenses, thee plan can qualify as a PHSP. Where it is not possible to establish a separate plan for medical expenses, we are generally prepared to treat the plan as two separate plans if the employer records the medical expense portion separately from the other expenses. In this way, and subject to compliance with all other conditions, only the part of the plan covering medical expenses may be eligible as a PHSP.

S2-F1-C1 - Health and Welfare Trusts

no. employees

1.5 …There is no minimum number of employees that must be covered under a private health services plan.

25 June 2014 External T.I. 2014-0521301E5 - PHSP - employee-shareholder

cost-plus plan

A cost-plus health plan ("Plan") administered by a third party (e.g., insurance company) is offered by a corporation to its sole shareholder who is also the sole employee. CRA stated:

[A] cost-plus plan under which the administrator agrees to reimburse the sole employee-shareholder, his or her spouse, and members of his or her household for actual medical and hospital expenses and receives, as consideration, an amount equal to the amount reimbursed plus an administrative fee, does not qualify as a PHSP since it does not contain the necessary elements of insurance.

15 October 2013 External T.I. 2013-0498001E5 F - Transfert de sommes inutilisées entre régimes

transfer from individual healthcare spending account to another PHSP is permitted

Is it possible for the employer (a university) to reallocate the unused credits from the individual healthcare spending account for professional employees (qualifying as a private health services plan) to another PHSP ("second plan") or to the global group insurance account without affecting the qualification of the healthcare spending account as a PHSP? CRA responded:

[A] healthcare spending account that allows the transfer of funds to another plan that qualifies as a PHSP could retain its PHSP designation. However, if the healthcare spending account allowed for the transfer of unused amounts to another plan, such as a group insurance plan, the healthcare spending account would not be considered a PHSP.

1 December 2010 External T.I. 2010-0385491E5 F - Postes isolés dans la fonction publique

employer agreement to pay transportation costs from remote location re medical appointments could qualify as an exempt PHSP

Federal employees working at isolated posts are reimbursed for travel expenses (travel and accommodation) incurred in relation to the medical services obtained where they or their dependants undergo medical or dental treatment at the nearest Canadian location. Are such reimbursements a taxable benefit? After stating that an “arrangement under which an employer reimburses its employees for the cost of medical or hospital care … fall[s] within the definition of PHSP … where the employer is required under the contract of employment to reimburse such expenses incurred by employees or their dependants,” CRA referred to the tests in ss. 118.2(2)(g) and (h) for the expenses to so qualify.

13 May 2010 External T.I. 2009-0328741E5 F - Régime "à prix coûtant majoré"

satisfaction of “reasonable risk” condition in IT-339R2 for cost-plus plan

Under a "cost-plus" plan offered to company executives, they are reimbursed for health expenses not otherwise reimbursed by their group insurance, such as eyeglasses or dental expenses, up to a specified amount per year, with the executive being able to carry forward the unused balance from that year to the following year (but with the maximum amount that can be so carried forward not exceeding the allowable rebate amount for a year.)

In commenting as to whether the plan qualified as a PHSP having regard to the “reasonable risk” condition in IT-339R2, CRA stated:

[A] plan carries a reasonable degree of risk if there is a risk that the maximum annual amount allocated to the employee may not be fully reimbursed one day. …

[A] plan has a reasonable degree of risk if it allows the unused limit for a year to be carried forward for up to 12 months.

… [A] plan does not involve a reasonable degree of risk where, for example, the employer can unilaterally revoke the plan, where the unused annual allocation can be refunded, or where the unused limit in one year and the unclaimed medical expenses in one year are both transferable to a later year.

18 July 2008 External T.I. 2008-0271211E5 F - Fiducie de santé et de bien-être

PHSP can include a self-insured plan

Members of a provincial professional association (the "Employers") are eligible to join a multi-employer health insurance plan (the “Plan”) administered by a health and welfare trust. Currently, the base component of the plan (the "base plan") uses Employer contributions to pay the required premiums for insurance coverage provided under a group insurance contract with an insurance company (the "Insurer") and administration fees. The Insurer then pays the eligible claims. Would the plan becoming self-insured impact on its potential qualification as a PHSP? CRA stated:

[A]n arrangement where an employer reimburses its employees for the cost of medical or hospital care may come within the definition of PHSP. This occurs where the employer is obligated under the employment contract to reimburse such expenses incurred by the employees or their dependants. The consideration given by the employee is considered to be the employee's covenants as found in the collective agreement or in the contract of service. Similarly, the CRA is of the view that the mere fact that the benefits of a plan may become self-insured will not preclude the plan from being considered a PHSP, provided all other requirements for such a plan are satisfied.

6 May 2008 External T.I. 2007-0254661E5 F - Partie B Medicare

U.S. Medicare Part B premiums may be eligible respecting the medical tax credit

Regarding whether premiums paid to the U.S. Medicare (Part B) plan qualified for the medical expense credit, CRA stated:

Medicare appears to encompass the basic elements of being an insurance plan according to [IT-339R2, para. 3]. However, in order to qualify for the medical expense tax credit, it would be necessary to determine whether the only expenses covered by the plan are eligible medical expenses pursuant to subsection 118.2(2) and who is covered by the plan … .

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 126 - Subsection 126(7) - Non-Business-Income Tax U.S. Medicare Part B premiums are not non-business income tax 124

17 March 2008 External T.I. 2006-0216751E5 F - Régime individuel - RAMQ - Retraité

same exemption applicable where benefits under a PHSP are enjoyed by a retiree

Are the premiums paid by the employer for individual insurance policies for retirees under the Quebec General Drug Insurance Plan (“RGAMQ”) a taxable benefit? After noting that the premiums paid would not be a taxable benefit, as the RGAMQ is a private health services plan, CRA stated:

A person who has retired from the employer receives the same treatment as the employee. Finally, the fact that the employer's share of the RGAMQ is paid under an individual plan is not a factor to be taken into account in this analysis.

26 May 1995 External T.I. 9501715 - SELF-FUNDED PRIVATE HEALTH SERVICES PLANS

A self-funded dental care plan can qualify as a private health services plan.

15 June 1993 T.I. (Tax Window, No. 32, p. 12, ¶2606)

A plan providing coverage for a partner of the same sex does not qualify as a private health services plan. Where it is not feasible to have a separate plan which is not a private health services plan, RC is prepared to treat a plan as being two separate plans provided the administrator accounts for contribution separately.

13 June 1991 T.I. (Tax Window, No. 4, p. 28, ¶1301)

An employer funded arrangement to cover employee medical expenses will not be a private health insurance plan if it permits excess contributions and medical expenses to be carried forward from year to year.

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