Module 6 - Leveraging the Tax Regime in Health and Dental Plan Management Flashcards
Explain the basic relationship between group benefit plans and the public health care system.
Before Canada introduced its public health care system (also known as “Medicare”) in the mid-1960s, health care plans provided coverage for basic hospital services, such as standard ward hospital accommodation and treatment by physicians and surgeons as well as supplementary items, such as prescription drugs. Now, EHC plans share a role with governments in ensuring that Canadians receive adequate health care by building on the minimum universal standard care that provincial/ territorial health plans provide and covering those medical products and services the government does not provide.
Rachel recently received cancer treatments. A portion of the cost of these treatments was covered by her provincial health insurance plan. She also has group EHC coverage from her employer. Identify the second payer in this situation and whether there are restrictions on what is covered by the second payer.
Generally, EHC plans are the second payer to provincial/territorial health insurance plans and are precluded from making payments toward expenses covered by government health plans. EHC plans limit payments to medically necessary expenses that government health programs do not pay for and that fall within the provisions of the benefits plan document or the insurance contract.
In order to receive favourable tax treatment, a group benefits plan must qualify as a private health services plan (PHSP) under the Income Tax Act (ITA). Describe how ITA defines a PHSP.
A PHSP is any vehicle created to provide or reimburse a group of employees for health and dental expenses, as well as health care spending accounts (HCSAs). The ITA defines a PHSP to mean:
(a) A contract of insurance in respect of hospital expenses, medical expenses or any combination of such expenses
(b) A medical care insurance plan or hospital care insurance plan or any combination of such plans, except any such contract or plan established by or pursuant to:
A law of a province or territory that establishes a health care insurance plan as defined in the Canada Health Act
An Act of Parliament or a regulation made thereunder that authorizes the provision of a medical care insurance plan or hospital care insurance plan for employees of Canada and their dependents and for dependents of members of the Royal Canadian Mounted Police and the regular force where such employees or members were appointed in Canada and are serving outside Canada.
Explain the tax treatment of the benefits plan members receive from a group EHC, dental or HCSA plan that qualifies as a PHSP under IT-339R2, Meaning of “private health services plan.”
When a plan (EHC, dental or HCSA) qualifies as a PHSP under the ITA, plan members do not pay tax on the benefits received.
Describe the tax treatment of plan sponsor and plan member contributions to a PHSP as outlined in IT-339R2, Meaning of “private health services plan.”
When a plan qualifies as a PHSP under IT-339R2, the plan sponsor can deduct plan contributions for tax purposes, and plan members do not pay tax on the plan sponsor contributions (except for provincial income tax on plan sponsor contributions for Quebec residents).
Amounts paid to the plan by an employee as a premium, contribution or other consideration to a PHSP are made from after-tax income, i.e., are not tax deductible, but qualify as a medical expense for purposes of the medical expense tax credit (METC). In order to qualify, the amounts paid must be for one or more of:
(a) The employee
(b) The employee’s spouse
(c) Any member of the employee’s household with whom the employee is connected by blood relationship, marriage or adoption.
Identify the basic elements a plan must have to qualify as a PHSP under IT-339R2, Meaning of “private health services plan.” Provide examples for each element. (5)
- Must be an undertaking by one person: When an employer creates a PHSP for its employees, whether it’s an insured plan or not, the employer is the “person” engaging in the undertaking.
- Must indemnify another person: In the employment context, the person is the employee. The indemnification is for the insured losses.
- Must be for an agreed consideration: The agreed consideration is the employee’s promise to provide services to the employer. In exchange for these services, the employer provides PHSP benefits (and other compensation, such as salary and paid vacation).
- 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.
- Must be for an event, the happening of which is uncertain: This element in the definition of a PHSP imposes the requirement for an insurance risk on the arrangement. An insurance risk is the risk of financial loss resulting from an event that is uncertain. If the event occurs and the insured suffers a loss, the contract will pay benefits. If the event does not occur, the insured doesn’t receive anything.
Identify how “dependent” is defined under Income Tax Folio, S1-F1-C1, Medical Expense Tax Credit for the purpose of calculating a medical expense tax credit (METC).
A “dependent” is defined under Income Tax Folio, S1-F1-C1, Medical Expense Tax Credit as a person who is:
(a) A child, grandchild, parent, grandparent, brother, sister, uncle, aunt, niece or nephew of the individual or of the individual’s spouse or common-law partner
(b) Dependent on the individual for support at some time in the year
(c) A resident of Canada at some time in the year. This residence requirement does not apply if the person is the child or grandchild of the individual or of the individual’s spouse or common-law partner.
Outline individuals who are normally considered eligible dependents under group EHC plans.
In practice, individuals normally considered eligible dependents under group EHC plans are:
(a) The plan member’s legally married spouse
(b) The plan member’s common-law spouse
(c) The plan member’s common-law partner in a same-sex relationship
(d) The plan member’s unmarried natural, adopted or stepchild, up to age 21 or age 25 if a full-time student (age 26 in Quebec)
(e) The eligible spouse’s or partner’s unmarried natural, adopted or stepchild, up to age 21 or age 25 if a full-time student (age 26 in Quebec)
(f) A severely physically or mentally handicapped child of any age who is dependent on the plan member, providing they became disabled before attaining the limiting age in the contract.
Describe how medical expenses incurred outside of Canada are treated under Income Tax Folio, S1-F1-C1, Medical Expense Tax Credit.
As a general rule, eligible medical expenses are not restricted to those paid in Canada or for medical services provided in Canada.
Describe the range of medical practitioners under Income Tax Folio, S1-F1-C1, Medical Expense Tax Credit.
Income Tax Folio, S1-F1-C1, Medical Expense Tax Credit uses the terms “medical doctor” and “medical practitioner” as well as various other terms to describe individuals involved in the medical profession, in a way that is consistent with terms found in the Income Tax Act (ITA). Medical practitioner encompasses a broad range of individuals in the medical profession. A qualified medical practitioner means 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, medical doctors, dentists, nurses, chiropractors, occupational therapists, optometrists, pharmacists, physiotherapists, psychologists and speech-language pathologists.
Identify criteria that medical expenses must meet to satisfy the requirements of an METC under Income Tax Folio, S1-F1-C1, Medical Expense Tax Credit.
An eligible medical expense includes an amount paid to a medical practitioner, dentist or nurse or to a public or licensed private hospital for medical or dental services provided to the patient.
Identify criteria that a facility must meet to qualify as a licensed private hospital under Income Tax Folio, S1-F1-C1, Medical Expense Tax Credit.
A licensed private hospital, in the context of a facility located inside Canada, generally refers to a facility licensed under the laws of the province or territory in which it operates. For a facility located outside Canada, it is a private hospital licensed under the laws of the jurisdiction in which it operates.
Identify criteria that attendant care services must meet to satisfy the requirements of an METC under Income Tax Folio, S1-F1-C1, Medical Expense Tax Credit.
To be an eligible medical expense, attendant care must be provided by an attendant who performs a range of personal tasks that an individual is unable to do for himself or herself (e.g., meal preparation, maid and cleaning services, transportation and personal services such as banking and companionship). Note that if an individual is providing care as a single service provider, such as a provider of only cleaning services, their service is not viewed as attendant care.
Identify criteria that transportation and travel services must meet to satisfy the requirements of an METC under Income Tax Folio, S1-F1-C1, Medical Expense Tax Credit. (4)
An amount paid to transport a patient by ambulance to or from a public or licensed private hospital is an eligible medical expense under the following circumstances:
a) The patient travels to a place that is at least 40 kilometres away from the locality where they dwell to receive medical services
b) Substantially equivalent medical services are unavailable within the patient’s locality
c) The patient takes a reasonably direct travel route having regard to the circumstances
d) It is reasonable, in the circumstances, for the patient to travel to that place for the medical services.
Identify criteria that vision care services must meet to satisfy the requirements of an METC under Income Tax Folio, S1-F1-C1, Medical Expense Tax Credit.
Amounts paid for eyeglasses, including the cost of frames and lenses, and other devices for the treatment or correction of a vision defect are eligible medical expenses. The phrase “other devices for treatment or correction of a vision defect” includes contact lenses, if prescribed by a medical practitioner (oculist or ophthalmologist) or optometrist. Fees paid to a medical practitioner for eye exams and eye treatments, such as laser eye surgery, are also generally considered eligible medical expenses.
