Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
October 6, 2000
XXXXXXXXXX
Dear XXXXXXXXXX:
The Honourable Martin Cauchon, Minister of National Revenue has asked me to reply to your correspondence addressed to the Honourable Paul Martin, Minister of Finance, concerning the definition of a private health services plan (PHSP) in the Income Tax Act, and the rules in section 20.01 for individuals carrying on business. Mr. Martin sent a copy of your correspondence to Mr. Cauchon on August 14, 2000.
These PHSP rules were first introduced in the 1998 federal budget and allow owners of unincorporated small businesses to deduct certain PHSP premiums in the calculation of their business income.
In your correspondence, reference was made to an opinion given by the Income Tax Rulings Directorate in April 1999. In the particular opinion given, the view was expressed that a PHSP must have the basic elements of an insurance plan, namely, an undertaking by one person to indemnify another person for an agreed consideration from a loss or liability in respect of an event, the happening of which is uncertain.
The above elements must exist in all PHSPs, including those covered by Section 20.01, since the legislated definition of PHSPs is for all purposes of the Act. This definition refers to a contract of insurance or an insurance plan. An arrangement under which a sole proprietor (who has no employees) pays an administrator a fee to be reimbursed for his or her actual medical expenses, as well as those of other household members, is not considered to be a plan of insurance. Such a plan does not qualify as a PHSP because the necessary elements of insurance do not exist.
If you have any further questions, I invite you to contact Mrs. Marthe Wright, Assistant Director, Client Services Division at the Edmonton Tax Services Office, by calling 495-5932 or by writing to her at 9700 Jasper Avenue, Edmonton, Alberta T5J 4C8. Mrs. Wright is aware of our correspondence and will be pleased to help. If any of your members have specific questions concerning a particular plan, I suggest that they contact the Assistant Director, Client Services Division, at their nearest tax services office.
I trust that my comments will be of assistance.
Yours sincerely,
Bill McCloskey Assistant Commissioner Policy and Legislation Branch