| 24(1) | 901993 |
| M. Eisner | |
| (613) 957-2138 |
19(1)
November 1, 1990
Dear Sirs:
This is in reply to your letter of August 8, 1990 concerning private health services plans as defined in subsection 248(1) of the Income Tax Act (the "Act").
In your letter you have raised two issues. The first is whether a controlling shareholder can be a member of a plan that otherwise qualifies as a private health services plan ("PHSP") in respect of which payments by the employer are deductible and do not result in taxable benefits to the members. The second is whether a PHSP can be established by an employer for officers who are also its shareholders.
In the case of the first issue, it is our view that the controlling shareholder may be one of the members of an otherwise qualifying PHSP. Care should be taken, however, in accounting for the employer contributions under the plan, to segregate those contributions which are in respect of members who are not employees (and receiving similar coverage under the plan as the other employees) since contributions in respect of non-employees attract different tax treatment.
With respect to the second issue, it is our understanding that the plan in question is available only to employees who are shareholders. The Department's general view under such circumstances is to consider that coverage is extended to the individual by virtue of his shareholding rather than by virtue of his employment.
If coverage is received by the officers by virtue of their shareholding, subparagraph 6(1)(a)(i) of the Act would not apply and they would be considered to be in receipt of benefits that are taxable under subsection 15(1) of the Act. It follows that payments made in respect of the shareholders would not be deductible in computing the employers' income.
The foregoing represents a general interpretation of the legislation and, as such, may not be applicable in every situation. An accurate determination can only made upon considering all the specific facts of the situation. Should you have a factual situation, you may wish to apply for a binding advance income tax ruling if a transaction is proposed, or consult your local District Taxation Office if the transaction has been completed.
We hope that the foregoing comments are of assistance to you.
Yours truly,
for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch