Principal Issues: [TaxInterpretations translation] (1) Is the Isolated Posts and Government Housing Directive (IPGHD) a private health services plan (PHSP) for the purposes of the Income Tax Act?
(2) What is the tax treatment of amounts reimbursed to employees under the IPGHD?
Position: (1) Question of fact.
(2) If the IPGHD is a PHSP and the reimbursed expenses are expenses that would have qualified for the medical expense tax credit, there will be no amount to be included in computing the income of the employees receiving the reimbursement. If they are expenses that are not included in subsection 118.2(2), then a taxable benefit will be included in the employee's calculation.
Reasons: The Income Tax Act.
XXXXXXXXXX 2010-038549
December 1, 2010
Dear Sir,
Subject: Isolated Posts in the Public Service
This is in response to your email of October 29, 2010, requesting our opinion on the tax treatment of reimbursements of expenses associated with the non-optional use of medical or dental treatment under the Isolated Posts and Government Housing Directive ("IPGHD").
Unless otherwise indicated, all legislative references herein are to the provisions of the Income Tax Act (the "Act").
In particular, you described a situation of employees working at isolated posts whose labour relations are governed by the IPGHD, a Directive that forms part of the collective agreements for the unions that are signatories to the National Joint Council process. It is our understanding that the National Joint Council of the Public Service of Canada is the forum of choice for co-development, consultation and information sharing between the government as employer and public service bargaining agents.
Where those employees or their dependants undergo medical or dental treatment at the nearest Canadian location, the IPGHD allows these employees to be reimbursed for travel expenses (travel and accommodation) incurred in relation to the medical services obtained.
Thus, you wish to know if the reimbursement of those expenses is a taxable benefit to be included by the employees in receipt in computing their income.
Our Comments
It appears to us that the situation described in your letter and hereinafter summarized could constitute an actual situation involving taxpayers. As explained in Information Circular 70-6R5, it is not the practice of the Directorate to issue a written opinion regarding proposed transactions involving specific taxpayers otherwise than through advance income tax rulings. If your situation involved specific taxpayers and one or more transactions, you should submit all relevant facts and documents to the appropriate Tax Services Office for their opinion. However, we can offer the following general comments that may be helpful to you.
Generally, a reimbursement of medical expenses by an employer will be required to be included in computing the income of the employee who receives it, unless the reimbursement is made under a private health insurance plan.
The definition of "private health services plan" ("PHSP") for purposes of the Act is contained in Interpretation Bulletin IT-339R2, Meaning of "Private Health Services Plan". In our view, a PHSP is an insurance plan that must include the following basic elements:
- an undertaking by one person;
- to indemnify another person;
- for an agreed consideration;
- from a loss or liability in respect of an event;
- the happening of which is uncertain.
An arrangement under which an employer reimburses its employees for the cost of medical or hospital care may fall within the definition of PHSP. That is the case where the employer is required under the contract of employment to reimburse such expenses incurred by employees or their dependants.
Coverage by virtue of a PHSP must be for hospital care or expenses or for medical care or expenses that would normally qualify as medical expenses by virtue of subsection 118.2(2).
Your situation refers to the reimbursement of accommodation, incidental expenses and transportation costs incurred by the employee or a dependant and an accompanying person.
By virtue of paragraph 118.2(2)(g), expenses paid to a person engaged in the business of providing transportation services qualify as medical expenses to the extent that they relate to the transportation of an individual, the individual's spouse or common-law partner or a dependant (the "patient") – as well as a person accompanying the patient - to the extent that the patient, as certified by a medical practitioner, is incapable of travelling alone.
The patient and the person accompanying the patient must travel between the locality where the patient dwells to a place, not less than 40 kilometres from that locality, where medical services are provided. For those expenses to qualify under paragraph 118.2(2)(g), the following conditions must be satisfied:
(a) substantially equivalent medical services are not available near the patient's place of residence;
(b) the patient takes a reasonably direct route;
(c) it is reasonable, having regard to the circumstances, for the patient to travel to that place to obtain those services.
Where a person engaged in the business of providing transportation services is not readily available, subsection 118.2(4) instead recognizes as a qualifying medical expense by virtue of paragraph 118.2(2)(g) a reasonable amount for the use of a vehicle for the transportation of the patient, provided the conditions set out above are satisfied. For this purpose, the term "vehicle" includes any means of transportation used, including a vehicle owned by the individual claiming the expense, the patient or a family member of the patient.
Furthermore, paragraph 118.2(2)(h) takes into account travel expenses other than those referred to in paragraph 118.2(2)(g). Paragraph 118.2(2)(h) allows an individual to include in qualifying medical expenses other reasonable travel expenses incurred for the patient and for a person accompanying the patient if the patient is incapable, based on a certificate from a medical practitioner, of travelling alone. Travel expenses under paragraph 118.2(2)(h) must be incurred to obtain medical services in a place that is not less than 80 kilometres from the patient's place of residence, provided the following conditions are satisfied:
(a) substantially equivalent medical services are not available near the patient's place of residence;
(b) the patient takes a reasonably direct route;
(c) it is reasonable, having regard to the circumstances, for the patient to travel to that place to obtain those services.
Of course, the question of whether the reimbursement of expenses under the IPGHD is a reimbursement under a PHSP is a question of fact. If this were the case, and if the expenses reimbursed under the IPGHD were expenses described in paragraphs 118.2(2)(g) and (h), we are of the view that the reimbursement of those expenses would not be a benefit to be included in computing the income of the employee receiving it.
We hope that these comments are of assistance.
Best regards,
François Bordeleau, Advocate
Manager
Business and Partnerships Section
Income Tax Rulings Directorate.