29 June 2000 Ministerial Correspondence 2000-0028094 - PHSPs FOR SMALL BUSINESSES

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 a plan for a sole proprietor (who has no employees) enters into an arrangement to have family medical costs paid through a carrier for a fee i.e. a cost plus plan, qualifies as a PHSP

Position: No

Reasons: The necessary elements of insurance do not exist (para. 3 of IT-339R2). In particular no person has undertaken to indemnify another-proprietor has assumed all of the risks.

June 29, 2000

XXXXXXXXXX

Dear XXXXXXXXXX:

The Honourable Martin Cauchon, Minister of National Revenue, has asked me to make comments concerning your correspondence addressed to the Honourable Paul Martin, Minister of Finance, relating to the meaning of a private health services plan (PHSP), a defined term in the Income Tax Act, as it applies to the rules in section 20.01. Mr. Martin sent a copy of the correspondence to Mr. Cauchon on May 15, 2000.

These PHSP rules were first introduced in the 1998 federal budget and allow owners of unincorporated small businesses to deduct certain PHSP premiums in the calculation of their business income.

In your correspondence, reference was made to an opinion given by the Income Tax Rulings Directorate in April 1999. In the particular opinion given, the view was expressed that a PHSP must have the basic elements of an insurance plan, namely, an undertaking by one person; to indemnify another person; for an agreed consideration; from a loss or liability in respect of an event; the happening of which is uncertain.

The above elements must exist in all PHSPs, including those covered by section 20.01, since the definition of PHSPs in subsection 248(1), is for all purposes of the Act. This definition refers to a contract of insurance or an insurance plan. An arrangement under which a sole proprietor (who has no employees) pays an administrator a fee to be reimbursed for his or her actual medical expenses as well as those of other household members, is not considered to be a plan of insurance. Such a plan does not qualify as a PHSP because the necessary elements of insurance do not exist I understand that since getting your response, you discussed this aspect with Mr. John Oulton of the Income Tax Rulings Directorate.

If you have any questions concerning any particular plan or group of plans that you have set up, I suggest that you seek a resolution by contacting the Director of your local tax services office.

I trust that my comments explain the position of the Canada Customs and Revenue Agency on this matter.

							Yours sincerely,

							Bill McCloskey
							Assistant Commissioner
							Policy and Legislation Branch