IT-339R2 Meaning of private health services plan [1988 and subsequent
taxation years]
NO: IT-339R2
DATE: AUGUST 8, 1989
SUBJECT: INCOME TAX ACT
Meaning of private health services plan [1988 and subsequent
taxation years]
REFERENCE: Subsection 248(1) (also paragraphs 6(1)(a), 18(1)(a),
118.2(2)(q) and 118.2(3)(b))
APPLICATION
The provisions discussed below are effective for the 1988
and subsequent taxation years. For taxation years prior to
1988, refer to Interpretation Bulletin IT-339R dated June
1, 1983.
SUMMARY
This bulletin discusses the meaning of a "private health
services plan" and describes some of the arrangements
for covering the cost of medical and hospital care under such
a plan. It also discusses the tax status of contributions
made to such a plan by an employer on behalf of an employee
and the circumstances under which the premium costs incurred
by an employee qualify as medical expenses for purposes of
the medical expense tax credit.
DISCUSSION AND INTERPRETATION
1. Contributions made by an employer to or under a private
health services plan on behalf of an employee are excluded
from the employee's income from an office or employment by
virtue of subparagraph 6(1)(a)(i). On the other hand, an amount
paid by an employee as a premium, contribution or other consideration
to a private health services plan qualifies as a medical expense
for purposes of the medical expense tax credit by virtue of
paragraph 118.2(2)(q). The amounts so paid must be for one
or more of
(a) the employee
(b) the employee's spouse and
(c) any member of the employee's household with whom the
employee is connected by blood relationship, marriage or adoption.
For further comments on the medical expense tax credit see
the current version of IT-519.
For purposes of the Act, a "private health services
plan" is defined in subsection 248(1).
2. The contracts of insurance and medical or hospital care
insurance plans referred to in paragraphs (a) and (b) of the
definition in subsection 248(1) of "private health services
plan" include contracts or plans that are either in whole
or in part in respect of dental care and expenses.
3. A private health services plan qualifying under paragraphs
(a) or (b) of the definition in subsection 248(1) is a plan
in the nature of insurance. In this respect the plan 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.
4. Coverage under a plan must be in respect of hospital care
or expense or medical care or expense which normally would
otherwise have qualified as a medical expense under the provisions
of subsection 118.2(2) in the determination of the medical
expense tax credit (see IT-519).
5. If the agreed consideration is in the form of cash premiums,
they usually relate closely to the coverage provided by the
plan and are based on computations involving actuarial or
similar studies. Plans involving contracts of insurance in
an arm's length situation normally contain the basic elements
outlined in 3 above.
6. In a "cost plus" plan an employer contracts
with a trusted plan or insurance company for the provision
of indemnification of employees' claims on defined risks under
the plan. The employer promises to reimburse the cost of such
claims plus an administration fee to the plan or insurance
company. The employee's contract of employment requires the
employer to reimburse the plan or insurance company for proper
claims (filed by the employee) paid, and a contract exists
between the employee and the trusted plan or insurance company
in which the latter agrees to indemnify the employee for claims
on the defined risks so long as the employment contract is
in good standing. Provided that the risks to be indemnified
are those described in paragraphs (a) and (b) of the definition
of "private health services plan" in subsection
248(1), such a plan qualifies as a private health services
plan.
7. An arrangement where an employer reimburses its employees
for the cost of medical or hospital care may come within the
definition of private health services plan. 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.
8. Medical and hospital insurance plans offered by Blue Cross
and various life insurers, for example, are considered private
health services plans within the meaning of subsection 248(1).
In addition, the Group Surgical Medical Insurance Plan covering
federal government employees qualifies as a private health
services plan within the meaning of subsection 248(1). Therefore,
payments made by an individual under any such plan qualify
as medical expenses by virtue of paragraph 118.2(2)(q).
9. Private health services plan premiums, contributions or
other consideration paid for by the employer are not included
as medical expenses of the employee under paragraph 118.2(2)(q)
by virtue of paragraph 118.2(3)(b) and are not employee benefits
(see 1 above). They are however, business outlays or expenses
of the employer for purposes of paragraph 18(1)(a). On the
other hand, contributions or premiums qualify as medical expenses
under paragraph 118.2(2)(q) where they are paid directly by
the employee, or are paid by the employer out of deductions
from the employee's pay. The amounts so paid must be for one
or more of
(a) the employee,
(b) the employee's spouse and
(c) any member of the employee's household with whom the
employee is connected by blood relationship, marriage or adoption.
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