Ministerial Enquiry
24(1)
This is in reply to your memorandum dated September 26, 1991 wherein you requested our opinion as to the deductibility of premiums paid to the Ontario Health Insurance Plan ("OHIP") by 24(1) as agreed during our telephone conversation (Fournier/Vanasse) dated October 17, 1991, we are providing our comments regarding the above mentioned Ministerial Enquiry directly to you for your attention.
As stated in paragraph 1 of Interpretation Bulletin IT-85R2, in order for the Trust to qualify as a health & welfare trust, the benefit programs funded through the Trust must be restricted to one or more of the following plans:
a) a private health services plan (PHSP), b) a group term life insurance policy, or c) a group sickness or accident insurance plan.
Under the definition in subsection 248(1) of the Income Tax Act (the "Act"), a PHSP must be a contract or plan of insurance in respect of hospital and medical expenses but specifically excludes provincial health care plans such as OHIP. As the Trust covers programs beyond what is permitted in (a) through (c) above, the Trust may not qualify as a health and welfare trust and thus would not be accorded the tax treatment outlined in IT-85R2.
Paragraph 4 of IT-85R2 further states that where part of a single plan can be regarded as a plan described in (a) to (c) above and another as an employee benefit plan or an employee trust, the combined plan is given employee benefit plan or employee trust treatment in respect of the timing and amounts of both the employer's expense deductions and the employees' receipt of benefits under the plan. However, if contributions, income and disbursement of the part of the plan that is described in (a) to (c) above are separately identified and accounted for, the tax treatment outlined in IT-85R2 apply to that part of the plan.
Consequently, OHIP premiums are not deductible from income earned in a health and welfare trust. However, paragraph 104(6)(a.1) of the Act provides that in the case of a trust governed by an employee benefit plan, an amount, such a OHIP premiums, may be deducted up to the income of that trust if the amount is included in the employee's income under either paragraph 6(1)(a) or subsection 104(13) of the Act.
It is therefore our opinion that the Trust will be subject to the tax treatment accorded to employee benefit plans as outlined in IT-502 unless the Trust can segregate contributions, income and disbursements relating to the OHIP premiums and treat this part of the plan as an employee benefit plan. It is important to note that the establishment of a separate trust would not be necessary.
Please find attached the 1988, 1989 and 1990 T3 trust returns which were forwarded to us with your request.
We trust our comments will be assistance to you.
B.W. DathDirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch