2014-0524321I7 NEW BRUNSWICK DRUG PLAN - PREMIUMS

Principal Issues: Whether premiums paid to the New Brunswick Drug Plan are qualifying medical expenses pursuant to subsection 118.2(2) of the Income Tax Act?

Position: Yes.

Reasons: See response.

Author: Ratnasingham, Sharmini
Section: 118.2(2); 248(1)

Shawn Nelson
Intergovernmental Relations Advisor
Canada Revenue Agency
126 Prince William St. 
Saint John, NB E2L 4H9

2014-052432
S. Ratnasingham

July 30, 2014

Dear Mr. Nelson:

Re: The New Brunswick Drug Plan - Deductibility of Provincial Drug Plan Premiums

We are writing in response to your March 12, 2014 email enquiry on the above subject. You inquired whether premiums paid to the New Brunswick Drug Plan (“NBDP”) are qualifying medical expenses pursuant to subsection 118.2(2) of the Income Tax Act (the “Act”).

Your email of April 9, 2014, provided the following additional information:

• The NBDP will be implemented in two phases. Phase 1 begins on May 1, 2014 when New Brunswick residents with a valid Medicare card may choose to enrol in the plan. Phase 2 begins April 1, 2015, when all New Brunswick residents will be required to have prescription drug insurance and those not insured by a private plan will join the New Brunswick Drug Plan.
• The applicable legislation for the NBDP is: Prescription and Catastrophic Drug Insurance Act. The legislation received Royal Assent on March 26, 2014.
• NBDP is an insurance plan with a premium and a mandatory plan for all residents without drug coverage.
• The financial participation of the individual/family will be based on ability to pay.
• The terms of coverage (premium, deductible and co-payment) must be reviewed regularly.
• The NBDP will only cover prescription drugs listed on the New Brunswick Drug Plan Formulary.

OUR COMMENTS

Subsection 118.2(2) of the Act provides a list of expenditures that qualify as medical expenses. Under paragraph 118.2(2)(q) of the Act, an amount paid as a premium, contribution or other consideration under a private health services plan (“PHSP”) is considered to be a medical expense for purposes of the Medical Expense Tax Credit (“METC”). These payments must be made in respect of the individual, the individual’s spouse or common-law partner or any member of the individual’s household with whom the individual is connected by blood relationship, marriage, common-law partnership or adoption. In the event such payments are deducted by the individual under subsection 20.01(1) of the Act, they are no longer considered a medical expense for purposes of the METC.

A PHSP is defined in subsection 248(1) of the Act as a contract of insurance in respect of hospital expenses, medical expenses or any combination of such expenses, or a medical care insurance plan or hospital care insurance plan or any combination of such plans. Paragraph (c) of the definition of PHSP excludes, among other things, a contract or plan established by, or pursuant to a law of a province that establishes a “health care insurance plan” as defined in section 2 of the Canada Health Act. In this regard, section 2 of the Canada Health Act defines a “health care insurance plan” as a plan established by the law of the province to provide for insured health services. Further, insured health services are defined in the Canada Health Act as, generally, hospital, physician, and surgical-dental services provided to insured persons.

We are advised that the NBDP is a provincial drug insurance plan that helps individuals with the cost of their prescription drugs listed in the New Brunswick Drug Plan Formulary only. The prescription drugs would appear to qualify as an eligible medical expense under subsection 118.2(2) of the Act. We are also advised that the NBDP is not a plan established by the law of the province to provide for insured health services under the Canada Health Act. As such, it appears that the NBDP meets the definition of PHSP in subsection 248(1) of the Act.

In our view, the premiums paid to the NBDP are qualifying medical expenses pursuant to paragraph 118.2(2)(q). If the program is ever modified to include coverage for disbursements which are not qualifying medical expenses pursuant to subsection 118.2(2), the premiums paid to the NBDP would no longer qualify under paragraph 118.2(2)(q).

We trust these comments will be of assistance.

Yours truly,

Pamela Burnley, CPA, CA
Tax Credits and Ministerial Issues
Business and Employment Division
Income Tax Rulings Directorate

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