Principal Issues: Whether the addition of a rider in a plan that would otherwise qualify as a PHSP would affect the characterization of the plan as a PHSP. The additional rider would allow an employee to enter into an individual plan similar to the PHSP in the event that an employee terminates employment.
Position: No.
Reasons: Coverage under the plan would remain solely in respect of eligible medical expenses.
XXXXXXXXXX 2010-036616 J. Gibbons, CGA July 7, 2010
Dear XXXXXXXXXX :
Re: Rider for "Group Assured Access" in a Private Health Services Plan ("PHSP")
This is in reply to your facsimile dated May 3, 2010, concerning a supplemental clause that would be added to a plan that otherwise would qualify as a PHSP under the definition of that term in subsection 248(1) of the Income Tax Act (the "Act"). You wish to have our views as to whether such a supplemental clause would have any effect on the characterization of the plan as a PHSP.
It is our understanding that the supplemental coverage would allow an employee, in the event of termination of employment, to directly enter into an individual health contract with the insurance company, similar to the employee's existing PHSP, at standard premium rates and that most closely matches the employee's medical/dental needs. Also, the employee would not have to provide evidence of his or her health status. This additional coverage would be funded by regular premiums paid by the employer or the employee with a premium rate based on standard actuarial assumptions taking into account employee termination rates, morbidity rates, etc. In short, the additional coverage guarantees employees access to a "group like" PSHP. This coverage is intended to be made available to all employees and not restricted to any one employee group.
Our comments
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Also, where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. Nonetheless, we are prepared to offer the following general comments.
In our view, the addition of a rider to a PHSP that would guarantee employees access to a quasi-group PHSP in the event of the termination of employment would not, in and of itself, cause the plan to be disqualified as a PHSP. This is based on our understanding that coverage under the amended plan remains solely in respect of eligible medical expenses.
We trust these comments will be of assistance.
Yours truly,
G. Moore
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch