| 19(1) | File No. 5-8715 |
| J.D. Jones | |
| (613) 957-2104 |
October 23, 1989
Dear Sirs:
Re: Private Health Services Plan (PHSP)
This is in reply to your letter of August 17, 1989, addressed to the Toronto District Taxation Office which has been forwarded to this Division for reply. You have requested our opinion on the appropriateness of the design of a PHSP for the purposes of the Income Tax Act having regarding to the Department's position as expressed in IT-339R2.
It is our understanding the details of your situation may be summarized as follows:
24(1)
You have asked for our opinion on whether the above format conforms to the Department's requirements as delineated in paragraphs 6 and 7 of IT-339R2. Additionally, you have asked if a quasi "cost plus" plan must utilize an insurance contract or a trust as stated in paragraph 6 of IT-339R2 or can an "arrangement" described in paragraph 7 of IT-339R2 (using no contract or trust) also adopt a "cost plus" format. Finally, you have asked if the "contract of service" must be written to qualify under paragraph 7 of IT-339R2.
We would comment that we are reluctant to express an opinion about a plan when we do not actually have a copy of its governing document. However, based upon the situation as described above, we would offer the following comments.
The PHSP described above "may" come within the definition of a PHSP provided the employer has a contractual obligation to make such reimbursements to its eligible employees. Whether or not such an obligation exists would involve a finding of fact in each particular situation. While a "cost plus" plan utilize a trusteed plan or insurance company for the provision of indemnification of employee's claims on defined risks under the plan, it is our view that an "arrangement" as described in paragraph 7 of IT-339R2 (using no contract or trust) may also adopt a "cost plus" format provided section 67 of the Income Tax Act is not applicable. The "contract of service" need not, in our view, be written to qualify under paragraph 7 to IT-339R2 provided the employer has sufficient evidence to establish its existence.
The foregoing represents a general interpretation of the law and, as such, may not applicable in every situation. As your enquiry relates to a completed transaction, you may wish to submit all relevant documentation to your local District Taxation Office for their views.
Yours truly,
for DirectorBusiness and General DivisionSpecialty Rulings DirectorateLegislative and Intergovernmental Affairs Branch
c.c. TORONTO DISTRICT OFFICEAudit ReviewG. Cappella