Principal Issues: Whether the benefits received by a shareholder/employee is received qua employee or qua shareholder.
Position: Question of fact.
Reasons: If the benefit is received as part of a reasonable remuneration package paid to the individual as an employee, it may be considered to be received qua employee; otherwise, it would be considered to be received qua shareholder.
October 19, 2006
Client Services HEADQUARTERS Barrie TSO J. Gibbons, CGA (819) 458-3538 Attention: Allen Lloyd 2006-020495
Cost_Plus Private Health Services Plans ("PHSPs")
This is in response to your email dated September 12, 2006, regarding the above-noted issue. In particular, you are seeking our help in responding to a taxpayer's enquiry in which he questioned whether a recent court decision has resulted in a change to the CRA's interpretation of the law regarding a shareholder's participation in a cost-plus PHSP.
It is our general position that a benefit will be considered to be received qua employee if it is reasonable to conclude that it has been provided as part of a reasonable remuneration package for the individual as an employee. A recent court decision on the issue of shareholder benefits from a cost-plus PHSP, which may be the one alluded to by the taxpayer, is Spicy Sports Inc. and Steve Cousins v. The Queen (hereinafter referred to simply as Spicy Sports), 2004 UDTC 123, heard under the informal procedures of the Tax Court of Canada ( the "TCC"). In its decision, the TCC ruled that the benefits from a cost-plus PHSP provided by Spicy Sports Inc., the employer, to an employee/shareholder owning 51% of the shares of the corporation were received by the individual in his capacity as shareholder.
In Spicy Sports, the TCC acknowledged that the issue of employee versus shareholder benefits is a question of fact. It then concluded, having regard to the generosity of the particular plan, which provided complete coverage to the employee/shareholder for a $35,996 knee surgery performed in the U.S., that it would be unlikely that Spicy Sports Inc. would have entered into a contract to provide the particular cost-plus PHSP with an arm's length key employee. In our view, the TCC's decision in this case is consistent with our general position described above.
For your information a copy of this memorandum will be severed using the criteria in the Access to Information Act and placed in the CRA's electronic library. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the Taxpayer. Should the Taxpayer request a copy of this memorandum, they can be provided with the electronic library version, or they may request a severed copy using the Privacy Act criteria, which does not remove client identity. Requests for this latter version should be made by you to Mrs. Jackie Page at (819) 994-2898. A copy will be sent to you for delivery to the client.
If we can be of any further assistance, please feel free to contact the author at the above-noted number.
Randy Hewlett
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch