R.B. DAY (613) 957-2136
MAY 19 1988
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Re: Private Health Services Plan ("PHSP") Paragraph 7 of IT-339R
We are writing in reply to your letter of March 31, 1988, wherein you requested our views as to whether or not the following arrangements would meet the exception set out in paragraph 7 of TT-339R and thus qualify as a PHSP.
1. A contract of service between an employer and one non-related employee provides that the employer reimbursed dental expenses of the employee or his dependents to a maximum of $1,200 per year.
2. The situation as described in 1 above is the same, except that the employee is the sole employee of a corporation controlled by the employee.
Paragraph 7 of IT-339R makes the general statement that payments of the type described in 1 above "may" come within the definition of a PHSP 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. As a consequence we are reluctant to express an opinion about a contractual arrangement without having access to specific contracts and other documentation concerning the arrangement. However, it would appear from the limited information submitted, that the arrangement described in 1 above may qualify as a PHSP In accordance with paragraph 7 of TT-339R.
Although there is no limit on the number or types of employees that may be covered by a plan we would generally consider that in the case of an employee/shareholder, coverage would be received by virtue of the individual B shareholdings rather than by virtue of his employment. As a consequence, subparagraph 6(1)(a)(i) of the Income Tax Act (the "Act") would not apply and the employee/ shareholder would be considered to be in receipt of a benefit taxable under paragraph 15(1)(c) of the Act. It follows therefrom, that the payment 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.
Yours truly,
ORIGINAL SIGNED BY R0BERT H.JOYCE
for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch