Principal Issues: [TaxInterpretations translation] Does the premium paid for a long-term care policy by an individual qualify as a medical expense within the meaning of subsection 118.2(2)?
Position: Question of fact
Reasons: The conditions of the wording of paragraph 118.1(2)(q) must be satisfied
FINANCIAL STRATEGIES AND INSTRUMENTS ROUNDTABLE
2006 APFF CONFERENCE
Question 9
Long-term care policy
Demographic trends being what they are, financial planning can hardly be separated or dissociated from the health component. The health dimension, as well as its dark side related to long-term care, must now be integrated into the planning process.
The ageing of the population, or even its longevity, has become an unavoidable reality. This is why some insurers offer products called: Long Term Care Policies.
The policy provides two coverages: one binding and one optional.
Binding coverage: Residential care
After a waiting period of 0 or 90 days, it provides for a daily benefit in the event of a prolonged stay in a long-term care facility. This is a fixed benefit that is paid to the insured person, regardless of the actual costs the individual has to pay to the institution.
Optional coverage: Home care
After a waiting period of 60 days or 90 days, it reimburses the cost of medically necessary health care recommended by a doctor and provided by a nurse.
Subsection 118.2(2) provides a description of medical expenses that qualify for the non-refundable tax credit.
Can CRA confirm that the premium paid by an individual for such a policy qualifies as a medical expense?
CRA Response
The expenses that qualify as medical expenses in calculating the medical expense tax credit under subsection 118.2(1) are described, inter alia, in subsection 118.2(2).
In this situation, to be deductible as a medical expense, the amounts paid as premiums must satisfy all the conditions set out in paragraph 118.2(2)(q). First, the premiums must be paid to a private health services plan as defined in subsection 248(1).
Paragraph 4 of Interpretation Bulletin IT-339R2, Meaning of ‘private health services plan’, states that coverage under a plan 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. Interpretation Bulletin IT-519R2 (Consolidated) Medical Expense and Disability Tax Credits and Attendant Care Expense Deduction describes the CRA's interpretation of medical expenses eligible for the medical expense tax credit. In our view, a plan that provides a fixed benefit regardless of the medical expenses incurred would not be a private health services plan.
Secondly, the premium paid by a taxpayer pursuant to a private health insurance plan must have been paid in respect of the taxpayer or a person related to the taxpayer and living in the taxpayer's home.
Consequently, we are of the view that a premium paid by an individual for a long-term care policy of the "Optional coverage: Home care" type may qualify as a medical expense if all the conditions of paragraph 118.2(2)(q) are satisfied. That qualification is a question of fact.
However, it is our view that premiums paid by an individual for a long-term care policy under a "Binding coverage: Residential care" would not be considered premiums paid under a private health services plan and would not qualify as medical expenses giving rise to a non-refundable tax credit.
Finally, in a hypothetical situation where the policy includes both coverages, it is our view that the policy would not be a private health services plan and therefore the premiums would not qualify as medical expenses giving rise to a non-refundable tax credit.
Anne Dagenais
957-2121
October 6, 2006
2006-019713