REVENUE CANADA TAXATION Head Office
XXXX
A. Humenuk (613) 957-2135
Attention: XXXX
OCT 27 1989
Dear Sirs:
Re: Private Health Services Plan
We are responding to your letter of July 21, 1989, concerning the taxation of benefits derived from a private health services plan ("PHSP").
You have asked whether or not the benefit derived from a PHSP is to be included in business income in the event that the benefit is received by an individual who is carrying on business and who has claimed a medical expense tax credit based on the premiums paid to the PHSP.
As indicated in paragraph 4 of the attached Interpretation Bulletin IT339R "Meaning of "Private Health Services Plan"" the coverage under a PHSP is limited to the reimbursement of an actual hospital care or expense or medical care or expense which would otherwise have qualified as a medical expense under subsection 118.2(2) of the Income Tax Act (the"Act"). Accordingly, a plan which includes an income protection feature for business or employment income would not qualify as a PHSP.
The taxation of income protection benefits is discussed in the attached Interpretation Bulletin IT-428 "Wage Loss Replacement Plans" and IT-223 "Overhead Expense Insurance vs. Income Insurance".
The amount received out of a plan which qualifies as a PHSP in respect of a claim for medical or hospital expenses of the individual or his family would not form part of that individual's income from business or property. While there is no provision in the Act which would require an individual to include such an amount in income, paragraph 118.2(3)(b) of the Act prohibits him from using any expense for which he has been or is entitled to be reimbursed as a medical expense for the purpose of computing the medical expense tax credit except to the extent that the reimbursement is otherwise required to be included in computing his income (e.g. where the reimbursement is from an employer and not out of a PHSP).
We trust our comments will be of assistance to you.
Yours truly,
for Director Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch
Enclosure