Lesson 7

Question 1

1.1 Rachel recently received cancer treatments. A portion of the cost of these treatments was covered by her provincial healthcare plan. She also has group EHC coverage from her employer. Identify the second payer in this situation and the restrictions on what is covered

Answer 1

EHC is the second payer and precluded from making payments towards expenses covered by the province.

Payment under an EHC plan is limited to medically necessary expenses not paid by government programs and within the provisions of the benefits plan document or the insurance contract

Question 2

2.1 In order to receive favourable tax treatment, a group benefits plan must qualify as a private health services plan (PHSP) under the ITA. Describe how the ITS defines PHSP (1 +2exceptions)

Answer 2

1) A contract of insurance in respect of hospital expenses, medical expenses or any combination of such expenses
2) A medical care insurance plan or hospital care insurance plan or any combination of such plans except any such contract or plan established or pursuant to:
a) a law of province or territory that established a health care plan as defined by the Canadian health act
b) an act of parliament or a regulation that authorizes the provision of a medical care insurance plan or hospital plan for employees of Canada and their dependents and for dependents of members of the RCMP and the regular force where such employees or members were appointed in Canada and are serving outside the country

Question 3

2.2 Explain the favourable tax treatment employers and employees receive if an EHC or HCSA plan qualifies as a PHSP under IT-339R2 Meaning of private health services plan

Answer 3

The employer can deduct contributions for tax purposes.

Employees don’t pay tax on the benefits received (except provincial income tax for Quebec residents)

Question 4

2.3 Describe the tax treatment of employer contributions and employee contributions to a PHSP as outlines in IT-339R2 meaning of Private Health Services Plan in terms of the implications for the employees taxes (2 points, 3 sub to the second)

Answer 4

employer contributions to a PHSP on behalf of an employee as excluded from an employee’s income (except provincial income tax for Quebec residents)

Amounts paid by an employee as a premium, contribution or other consideration to a PHSP qualifies as a medical expense for the purposes of the medical tax credit (METC). In order to qualify, the amounts paid must be for one or more of:

1) The employee
2) the employee’s spouse
3) Any member of the employee’s household with whom the employee is connected by blood relationship, marriage, or adoption

Question 5

2.4 Identify the basic elements a plan must have to qualify as a PHSP under IT-339R2 meaning of private health services plan (5)

Answer 5

1) must be an undertaking by one person (or entity, the employer counts)
2) Must indemnify another person (in an employment context the person is the employee)
3) Must be for an agreed consideration (the EE’s promise to provide services to the ER)
4) Must be for a loss or liability in respect of an event. This refers to the hospital or medical expenses covered in the insurance contract or plan
5) Must be for an event, the happening of which is uncertain. This is the risk being insured

Question 6

3.1 Identify how dependent is defined under Income Tax Folio, S1-F1-C1, Medical Expense Tax Credit for the purpose of calculating MET

Answer 6

1) A child, grandchild, parent, grandparent, brother, sister, uncle, aunt, niece or nephew of the individual or the individual’s spouse or common law partner
2) Dependent on the individual for support at some time in the year
3) A resident of Canada at some time in the year. This residence requirement does not apply in the person is the child or grandchild of the individual or of the individual’s spouse or common law partner

Question 7

3.2 Explain the basis of calculating the METC a person may claim for themselves or their dependents (2)

Answer 7

The lowest rate percentage is multiplied by the total of the following calculated amounts

1) for eligible medical expenses paid by the individual the individual can claim up tp the lesser o
- a fixed amount indexed annually in accordance with ITA
- 3% of the individual’s net income for the year

2) For eligible medical expenses paid by the dependent the individual can claim up tp the lesser of
- a fixed amount indexed annually in accordance with ITA
- 3% of the individual’s net income for the year

Question 8

3.3 Outline individuals who are normally considered eligible dependents under group EHC plans (6)

Answer 8

1) The member’s legally married spouse
2) The member’s common law spouse
3) The member’s common law partner in a same sex relationship
4) The member’s unmarried natural, adopted, or stepchild up to the age of 19 or 25 if a full time student
5) The spouse’s unmarried natural, adopted, or stepchild up to the age of 19 or 25 if a full time student
6) A severely physically or mentally handicapped child of any age who is dependent on the plan member

Question 9

3.4 Identify conditions that must be met in order for an individual to claim an METC (6)

Answer 9

1) the medical expenses are eligible ones
2) The medical expenses are paid by the member or their legal representatives
3) The medical expenses are paid within the 12 month period ending in the calendar year. Except if the individual the expenses were for died in which case claims may be made within any 24 month period that includes the date of death
4) The medical expenses have not been used in calculating any individual’s METC, a disability supports deduction or the refundable medical expenses supplement for the previous year or by any other individual for any year
5) The medical expenses must be proven by filing supporting receipts
6) The medical expenses must not have been reimbursed or be reimbursable

Question 10

3.5 Describe how medical expenses incurred outside of Canada are treated under the Income Tax Folio and give two exceptions

Answer 10

In general medical expenses aren’t restricted to those incurred in Canada except

1) attendant care must be provided in Canada
2) Care in a group home. This must be in Canada

Question 11

3.6 Describe the range of medical practitioners under income tax folio METC

Answer 11

A qualified medical practitioner is a person authorized to practice in accordance with the laws of the province or territory and certified according to the practitioner’s governing body including but not limited to:

• Doctors
• Dentists
• Nurses
• Chiropractors
• Occupational Therapists
• Optometrists
• Pharmacists
• Physiotherapists
• Psychologists
• and speech language pathologists

Question 12

3.7 Identify criteria that medical expenses must meet to satisfy the requirements of an METC under income tax folio METC

Answer 12

An eligible medical expense includes an amount paid to a medical practitioner, dentist or nurse or a public or licensed private hospital for medical or dental services

Question 13

3.8 Identify criteria that a facility must meet to qualify as a licensed private hospital under Income tax folio METC

Answer 13

Refers to a facility licensed under the laws of the province or territory in which it operates.

For a facility outside of Canada it is a private hospital licensed under the laws of the jurisdiction in which it operates

Question 14

3.9 Identify criteria that attendant care services must meet to satisfy the requirements of a mETC

Answer 14

The attendant must perform tasks that a person cannot do for themselves.

Note if an individual is providing care as a single service provider (like cleaning) this is not viewed as attendant care

Question 15

3.10 Identify criteria that services provided in a nursing home must meet to satisfy the eligibility requirements for a METC (4 points)

Answer 15

An establishment that provides full time maintenance of nursing home care for individuals that are unable to care for themselves.

Licensing is not required certain features such as 24-h nursing care to individuals unrelated to the owner.

Residence implies constant care required due to injury, illness or disability.

A retirement home doesn’t provide the same care as a nursing home.

Question 16

3.11 Identify criteria that services in a group home must satisfy to qualify the requirements of an METC (6)

Answer 16

1) The patient is an eligible individual with a disability in the tax year in which the expense is incurred
2) The group home is located in Canada
3) The group home is maintained and operated exclusively for the benefit of individuals who have a severe and prolonged impairment
4) No part of the remuneration is claimed as a childcare expense deduction or by the eligible individual with a disability as a disability supports deduction in any tax year
5) No part of remuneration is claimed in any tax year as an eligible expense
6) receipts for payments are issued

Question 17

3.12 Identify Criteria that vision care services must meet to satisfy the requirements for METC

Answer 17

Amounts paid for eyeglasses, frames, lenses, and other devices for the treatment or correction of a vision deficit are eligible medical expenses.

Other devices such as contact lenses can qualify if prescribed by a medical practitioner.

Fees paid for eye exams and treatments such as laser eye surgery are considered eligible expenses

Question 18

3.13 Identify the criteria that prescription drug expenses must meet to satisfy the requirements for an METC (5)

Answer 18

1) must be prescribed by a medical practitioner
2) The drugs must be manufactured, sold or represented for use in the diagnosis treatment or prevention of a disease, disorder or abnormal physical state or its symptoms or in restoring correcting or modifying an organic function
3) The drugs must only be lawfully acquired for use by the patient with the intervention of a medical practitioner
4) The drugs must be prescribed for the individual’s use by a medical practitioner
5) The purchase must be recorded by a pharmacist

Question 19

3.14 Identify criteria that over the counter drug expenses must meet to satisfy the requirements of an METC

Answer 19

The cost of OTC product generally don’t qualify even when prescribed.

Question 20

3.15 Identify criteria that preventative, diagnostic and other treatment expenses must meet to satisfy the requirements of an METC

Answer 20

Includes the cost of laboratory, radiological and other diagnosis procedures or services for maintaining health, preventing disease or assisting in the diagnosis or treatment of an injury illness or disability.

To be eligible these services must be prescribed by a medical practitioner

Question 21

3.16 Identify the criteria that premiums paid to a PHSO must meet to satisfy the requirements for a METC

Answer 21

Any premium including sales tax and premium taxes that an individual has paid to a PHSP by the individual for themselves or a connected member of the household.

Question 22

4.1.a What is the CRA position on coverage limits (qualifying expenses) for PHSPs

Answer 22

The only medical expenses that qualify for an METC can be paid from a PHSP.

If the expenses covered by the plan are not contained in the ITA the CRA position is that the entire plan fails to qualify as a PHSP

Question 23

4.1.b what is the CLHIA position on coverage limits for PHSPs

Answer 23

There is no statutory provision that links PHSP contributions or benefits to the statutory definition of medical expenses for the purposes of the METC.

The CLHIA view is that a PHSP can provide for expenses including services of an acupuncturist, massage therapist, etc. Ever where those activities aren’t regulated in which the service is provided. Also services provided in foreign jurisdictions can be covered under a PHSP even if similar services are available in Canada

Question 24

4.2 Provide examples of how plan sponsors and insurers react to the CRA requirement that PHSPs must satisfy to qualify for a n METC

Answer 24

The more limited definition may cause insurers to limit the scope of benefits that they are prepared to offer.

Some PHSPs may explicitly limit coverage to goods and services contained in the METC list of medical expenses.

Some consultants argue that there is less audit risk to the plan sponsor and plan members if benefits are restricted to those that the CRA has approved.

Question 25

5.1 Describe the features commonly included in EHC plans (4)

Answer 25

1) Expenses are limited to those that are limited to those that are medically necessary and may include a requirement for a referral by a physician
2) Reimbursement is limited to the cost that is reasonable and customary for a specified service or product within a region
3) Eligible expenses may be subject to a limit or maximum, including the incorporation of cost sharing measures such as deductibles and coinsurance
4) Covered expenses may include: Hospital, drugs, private duty nursing, paramedical practitioners, professional licensed ambulance, out of province/out of country services, travel assistance, vision care, hearing aids, accidental dental and miscellaneous medical supplies and services