Principal Issues: Expenses that may be covered by a PHSP
Position: Hospital or medical expenses which normally would otherwise qualify for the medical expense tax credit.
Reasons: The law and previous interpretations of the CRA.
June 30, 2010
XXXXXXXXXX
Dear XXXXXXXXXX :
The office of the Honourable James M. Flaherty, Minister of Finance, forwarded to me a copy of your correspondence, which I received on May 11, 2010. You are enquiring about expenses that may be covered by a private health services plan (PHSP).
Benefits that an employee receives or enjoys in respect of, in the course of, or by virtue of an office or employment are generally taxable as income from that office or employment pursuant to paragraph 6(1)(a) of the Income Tax Act. However, subparagraph 6(1)(a)(i) specifically excludes benefits derived from the contributions of a taxpayer's employer to or under a PHSP.
Pursuant to the Act, a PHSP means a contract of insurance in respect of hospital expenses, medical expenses, or any combination of such expenses or a medical care insurance plan, a hospital care insurance plan, or any combination of such plans. In Interpretation Bulletin IT-339R2, Meaning of private health services plan [1988 and subsequent taxation years], the Canada Revenue Agency has set out the requirements that must be met in order for a plan to be considered a PHSP. Paragraph 4 of that bulletin 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 under the provisions of subsection 118.2(2) in the determination of the medical expense tax credit.
As you noted in your correspondence, paragraph 118.2(2)(n) was amended as announced in the Budget 2008. Under that provision, amounts paid for drugs, medicaments, or other preparations or substances are eligible for the medical expense tax credit if all therequirements of that provision are met. That provision was amended to clarify the wording in response to a court case that had allowed the cost of vitamins and supplements as eligible medical expenses and which, as stated in the 2008 budget, was beyond the policy intent of that provision. Such expenses are not eligible for the medical expense tax credit and do not qualify as medical expenses covered by a PHSP.
I trust that the information I have provided is helpful.
Yours sincerely,
Keith Ashfield
Chrys Tzortzis
(613) 957-2082
2010-036823