Principal Issues: Whether the reimbursement of an employee's PHSP premiums by an employer would result in taxable employment benefits.
Position: Question of fact.
Reasons: If the employer reimburses an employee's PHSP premiums and shows the reimbursement as a payroll adjustment, the reimbursement will be exempt from inclusion as taxable employment benefits pursuant to subparagraph 6(1)(a)(i).
XXXXXXXXXX 2009-032245 J. Gibbons, CGA November 5, 2009
Dear XXXXXXXXXX :
Re: Reimbursement of an Employee's Private Health Services Plan ("PHSP)" Premiums
This is in reply to your letter dated May 12, 2009, concerning our position regarding the above-noted issue. In particular, you wish to have our views regarding the application of subparagraph 6(1)(a)(i) of the Income Tax Act (the "Act") in the situation described below.
The employees of your company pay PHSP premiums through payroll deductions. For a certain group of these employees, the company reimburses 50% of these premiums and shows this reimbursement as a payroll adjustment. You wish to know how this reimbursement should be reported.
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. Nonetheless, we are prepared to offer the following general comments.
Subparagraph 6(1)(a)(i) of the Act provides certain exceptions to the general rule in paragraph 6(1)(a) of the Act of taxing employment benefits of any kind. One of the exceptions outlined in subparagraph 6(1)(a)(i) of the Act is for employment benefits "derived from the contributions of the taxpayer's employer to or under a ... private health services plan." In this regard, the meaning of a "private health services plan" is defined under subsection 248(1) of the Act.
In our view, when an employer reimburses the employee for PHSP premiums in the manner described in your letter and shows the reimbursement as a payroll adjustment, such reimbursement may be considered to be a non-taxable employment benefit under subparagraph 6(1)(a)(i) of the Act.
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