16 June 1999 External T.I. 9910955 - CONTRIBUTIONS TO PHSP FOR RETIREES

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

Whether retired employees are subject to tax on benefits derived from former employer's contribution to a private health services plan

Position:

Not subject to tax. They are treated the same as current employees.

Reasons:

Similar position taken on prior cases

XXXXXXXXXX 5-991095
W. Antle

Dear XXXXXXXXXX:

Re: Tax Treatment of Employer-Paid Premiums to a Private Health Services Provider

We are writing in response to your letter dated April 21, 1999 in which you request a ruling concerning whether or not there is a taxable benefit to retired employees with respect to their former employer's continued contributions to a private health services plan on their behalf.

In your letter, you state that you were advised by a representative of XXXXXXXXXX that the employer contributions to the medical plan represented a taxable benefit to the former employees since they continued to enjoy the benefits of medical coverage even though they were retired. Consequently, since 1994, you issued T4A slips to these retired employees showing the employer contributions to the medical plan as a taxable benefit.

In our conversation on June 8, 1999 (Antle/XXXXXXXXXX), you indicated that the plan was a regular group medical plan providing coverage to employees and retired employees for medical services such as hospital care, and prescription drugs. For both continuing employees and retired workers, the employer pays 75% of the premium cost, which varies depending on coverage level from $1,000 to $2,000 per employee per year. The current employees pay their share of the premium cost through payroll deductions, and the retired employees pay the amounts directly to their former employer each month.

You also question whether the employer is responsible for issuing tax receipts to the employees and retired workers for the portion of the premiums paid by these employees and former employees.

Our Comments

The situation with which you are concerned appears to relate to transactions that have already occurred. Our policy concerning advance income tax rulings is set out in Information Circular IC 70-6R3 "Advance Income Tax Rulings" dated December 30, 1996. As outlined in that circular, we are unable to issue an advance income tax ruling concerning a transaction that has been completed. In such a case, you should submit the facts to your Tax Services Office for their reply. Nevertheless, we are prepared to offer the following comments.

Subparagraph 6(1)(a)(i) of the Income Tax Act (the "Act") excludes from income any benefit derived from an employer's contributions to or under a private health services plan ("PHSP"). In our opinion, this provision also applies to a retired employee, and any benefits derived from a former employer's contribution to a PHSP would not be taxable. In order for the benefit derived from employer contributions to be exempt from tax, the plan must be considered a "private health services plan" as defined under subsection 248(1) of the Act. Interpretation Bulletin IT-339R2 "Meaning of private health services plan" dated August 8, 1989 describes the types of plans that meet this definition. We have enclosed this bulletin for your review. Medical and hospital insurance plans offered by various life insurers are considered to be PHSP's.

We have not been provided with information upon which to comment whether the health care plan offered by XXXXXXXXXX meets the definition of a PHSP. However, if the plan is a PHSP, then the benefit derived from the XXXXXXXXXX contributions to the plan would not be taxable to the current or retired employees. In addition, no taxable benefit would be considered received for services provided under the plan. Accordingly, information slips would not be required to be issued to the retired employees with respect to the health care plan.

In order for employees or former employees to be able to claim a medical expense tax credit with respect to the premiums paid by them to the health care plan, they must provide receipts supporting the amounts paid, pursuant to subsection 118.2(1) of the Act. Therefore, employees or former employees may require tax receipts verifying the amount they paid to the plan.

We trust that this has clarified the matter for you.

Yours truly

R. Albert, C.A.

for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch