911720
Marc Vanasse
24(1) (613) 952-024319(1)
August 30, 1991
Dear Sirs:
Re: Private Health Services Plan
This is in reply to your letter dated June 19, 1991 wherein you requested our opinion as to the tax implications to employee/shareholders who are members of a Private Health Services Plan ("PHSP") as this term is defined in subsection 248(1) of the Income Tax Act (the "Act").
Based on the limited information provided in your request, we are reluctant to provide specific comments to your questions. However, we are prepared to provide you with the following general comments which may be of some assistance.
The Department has taken the position that, in the case of a controlling shareholder, coverage under insurance plans such as a PHSP would be received by virtue of the individual's shareholdings rather than by virtue of employment. Consequently, the benefit in question would be taxed in the shareholder's hands pursuant to subsection 15(1) of the Act and the exception under subparagraph 6(1)(a)(i) of the Act would not apply. Where subsection 15(1) of the Act applies to tax the shareholder because the benefit was received by him in his capacity as a shareholder and not as an employee, the payment of the premiums in question by the corporation would not be deductible in computing the corporation's income since the payment is not incurred by the corporation for the purposes of gaining, or producing income from a business or property as required under paragraph 18(1)(a) of the Act.
.../cont'd
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In the case of minority shareholders/employees, it would be a question of fact in each situation as to whether the employee/shareholder would receive coverage by virtue of the individual's employment rather than by virtue of the individual's shareholding. If the coverage was received by virtue of the individual's employment, then subparagraph 6(1)(a)(i) of the Act would apply to exclude as a taxable benefit reimbursements received by the employee under the PHSP and such payments made by the employer would be deductible as business outlays or expenses for the purposes of paragraph 18(1)(a) of the Act.
In our view, a PHSP may be implemented on a person by person basis between the employer and employees provided the PHSP otherwise qualifies. Therefore, the plan may be offered to some employees as opposed to all employees.
The foregoing represents a general interpretation of the legislation and, as such, may not be applicable in every situation. An accurate determination can only be 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 the transaction is proposed, or consult your local District Taxation Office if the transaction has been completed.
Yours truly,
for Director Business and General Division Rulings Directorate Legislative and Intergovernmental Affairs Branch
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