Provided that an employee (who is also a shareholder) is active in the business of a corporation whose only employees are also shareholders, and the benefits under the corporation’s private health services plan are reasonable and consistent with the benefits that would be offered to an arm’s length employee performing similar services, would the benefits be considered to be derived from the individual’s employment and in respect of a private health services plan? CRA responded:
…IT-529[, para. 16 notes] … “[I]n order for a health care spending account to qualify as a plan of insurance, there must be a reasonable element of risk. …[If] there is little risk that the employee will not be reimbursed for the full amount allocated to that employee annually, then the arrangement is not a plan of insurance and therefore, not a private health services plan.” In a situation where a corporation provides a self-insured HCSA for its only employee who is also its sole shareholder (sole employee-shareholder), it is likely that the sole employee-shareholder would be reimbursed for the full amount allocated to him or her annually.
…[R]egardless of whether a HCSA qualifies as a PHSP, a sole employee-shareholder who receives benefits out of the HCSA in his or her capacity as a shareholder is required to include such benefits in his or her income under subsection 15(1) … .
[The] general presumption that a sole employee-shareholder receives a benefit or an allowance in his or her capacity as a shareholder … may not apply if the benefit or allowance is comparable (in nature and amount) to benefits and allowances generally offered to non-shareholder employees of similar-sized businesses, who perform similar services and have similar responsibilities.