30 June 1995 External T.I. 9505605 - PHSP WITHIN A FLEX PLAN FOR SAME SEX BENEFITS

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:employee benefits for same sex partners

Position TAKEN:general comments given

Reasons FOR POSITION TAKEN:routine, no specific question asked

A. Humenuk
XXXXXXXXXX						950560

Attention: XXXXXXXXXX

June 30, 1995

Dear Sirs:

Re: Extended Health Care and Dental Benefits for Employees

Your letter of January 19, 1995 addressed to our Calgary office has been referred to us for reply. As discussed with you in our telephone conversation of June 12, 1995 (XXXXXXXXXX/Humenuk), we understand that you are looking for an overview of the tax consequences relating to the provision of benefits to the same gender partner of an employee and do not have any specific questions to be addressed. We apologize for the delay in our response.

Any benefit received by employees by virtue of or in respect of their employment is required to be included in income unless such benefit is specifically exempted by reason of one of the subparagraphs of 6(1)(a) of the Income Tax Act (Act).

The benefit from an employer-provided dental or health care plan is excluded from the employee's income provided that the plan qualifies as a "private health services plan" (PHSP). The Department's position on what constitutes a PHSP is outlined in the attached Interpretation Bulletin IT-339R2 "Meaning of "Private Health Services Plan". As stated in paragraph 4, the types of expenses which may be provided under a PHSP are limited to those which qualify as medical expenses for the purpose of the medical expense tax credit, as defined in subsection 118.2(2) of the Act. Since a claim for the medical expense tax credit is limited to the expenses incurred in respect of an individual, the individual's spouse or a dependant of the individual within the meaning of subsection 118(6) of the Act, coverage within the same plan for anyone else would jeopardize the status of the plan as a PHSP.

Effective with the 1993 taxation year, the meaning of the term "spouse" was extended for income tax purposes to include a person of the opposite sex with whom the individual cohabits in a conjugal relationship as well as persons married according to the laws of Canada. Since there is no provision in the Act which expands the legal definition of spouse for tax purposes to include same gender partners, a health care plan which provides coverage for same gender partners of employees (or anyone else whose medical expenses would not be eligible for the employee's medical expense tax credit) would not be a PHSP within the meaning of subsection 248(1) of the Act.

Where an employer wishes to extend to its employees non-qualifying health care benefits as well as those which do qualify for inclusion under a PHSP, the non-qualifying benefits can be offered through a separate plan, thereby preserving the tax free status of the benefits which do qualify. However, where it is not feasible for the employer to set up two separate plans, the Department is prepared to treat the plan as two separate plans provided that the plan administrator accounts for the contributions, income and disbursements of the part of the plan which provides non-taxable benefits separately from that which provides taxable benefits. While separate employer records and separate insurance policies are not required, there must not be any cross-subsidization between the plans and the level of benefits, the premium rates, the qualifications for membership and other terms and conditions of each of the plans must not be dependent upon the existence of the other plan or plans.

If the plan is not so segregated, the portion of the plan which would otherwise qualify as a PHSP will form part of the employee benefit plan or employee trust, depending on the choice made by the trustee, and benefits out of the plan will be taxable under either paragraph 6(1)(g) or (h) of the Act. For further information of the taxation of benefits out of an employee benefit plan or an employee trust, please refer to the attached Interpretation Bulletin IT-502 "Employee Benefit Plans and Employee Trusts".

Where an employee is provided with life insurance for his or her dependants, the value of such coverage or amount of premium paid for such coverage is included in the employee's income in the year the coverage is provided. The extension of such coverage to dependants other than a child or spouse of the employee would be taxed in the same manner.

Please note that the above noted comments are general in nature and are not intended as commentary on any particular benefit plan. If you have a specific concern relating to your benefit plan, please provide the relevant plan documentation along with the specific details of your concern. We trust that our comments have provided you with an overview of the Department's position in the matter of employment-related benefits provided for the spouse or partner of an employee.

Yours truly,

J.A. Szeszycki
for Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

Enclosure