21 September 1990 Income Tax Severed Letter ACC9640 - Private Health Services Plans

24(1)                                             900217
                                                  S. Short
                                                  (613) 957-2134

19(1)

Dear Sirs:

Re: Private Health Services Plans

This is in reply to your letter of March 5, 1990, wherein you asked whether an arrangement between a Corporation (the "Corporation") and its sole employee would constitute a "private health services plan" within the meaning of subsection 248(1) of the Income Tax Act in the following situation.

A contract between a Corporation and its sole employee will provide, inter alia, that the Corporation will reimburse the employee for all medical and dental expenses (as defined in subsection 118.2(2) of the Act) incurred by the employee for the benefit of himself, his spouse or his dependent children. Expenses will only be reimbursed if they are supported by receipts. Reimbursement claims will be made within six months of the expense being incurred. The Corporation will not reinsure this obligation with any insurance corporation. All of the shares of the Corporation are owned by the employee.

You have asked whether the arrangement will constitute a private health services plan as defined in subsection 248(1) of the Act and, if so, whether we agree that the reimbursement of medical and dental expenses would not result in a taxable benefit to the employee by virtue of subparagraph 6(1)(a)(i) of the Act.

Additionally, you have asked whether there reimbursement of such expenses would be considered to be a benefit conferred on a shareholder pursuant to subsection 15(1) of the Act.

As noted in your letter, paragraph 7 of IT-339R2 makes the general statement that payments of the type described "may" come within the definition of a "private health services plan" provided the employer has a contractual obligation to make such a payment. Whether or not such an obligation exists would involve a finding of fact in each particular situation. We are reluctant to express an opinion about the existence of a contractual arrangement without having access to specific contracts and other documentation concerning the arrangement.

However, from the limited information in your letter, the arrangement may qualify as a "private health services plan" in accordance with paragraph 7 of IT-339R2 . Although there is no limit on the number or types of employees that may be covered by a plan, we generally consider that, in the case of an employee/shareholder would be considered to be in receipt of a benefit taxable under subsection 15(1) of the Act.

It follows therefrom that payments made on the shareholder's behalf by the Corporation would not be deductible in computing the income of the Corporation.

The foregoing represents a general interpretation of the law and, as such, may not be applicable in every 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 the local District Taxation Office if the transaction has been completed.

We trust that the above comments are of assistance to you and apologize for the delay in providing our response.

Yours truly,

for Director Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch