2023-0970521E5 METC- Fees paid for a private health plan

Principal Issues: Whether the fees paid for a private health plan qualify as an eligible medical expense for the purposes of the METC.

Position: It is a question of fact whether the fees would qualify as an eligible medical expense under subsection 118.2(2) of the Income Tax Act. Where an amount paid to a medical clinic can reasonably be considered a prepayment of services that are to be provided over the course of the year and the services are actually provided in that year the fees (block fees) will generally be an eligible medical expense It is also a question of fact whether a particular arrangement may satisfy the definition of a PHSP for purposes of paragraph 118.2(2)(q) of the Act. Where the plan is not considered to be a PHSP within the meaning of subsection 248(1) of the Act, the fees are not an eligible medical expense for purposes of paragraph 118.2(2)(q) of the Act.

Reasons: Payments made for the availability of medical services or certain lab and diagnostic procedures and services would not qualify as an eligible medical expense under subsection 118.2(2) of the Income Tax Act (Act). However, a block fee is an eligible medical expense for the purpose of the METC where it is paid for eligible medical expenses as described in subsection 118.2(2) of the Act. Where the plan is considered to be a PHSP within the meaning of subsection 248(1) of the Act, the fees for a private health plan may be an eligible medical expense under paragraph 118.2(2)(q) of the Act.

Author: Underhill, Cynthia
Section: Section 118.2, subsections 118.2(2), 118.4(2); paragraphs 118.2(2)(a), (o), and (q), and 118.2(3)(b).

XXXXXXXXXX                                                                                    2023-097052

                                                                                                              C. Underhill

May 18, 2023

Dear XXXXXXXXXX:

Re: Fees paid for a private health plan

We are writing in response to your correspondence dated April 6, 2023, asking whether the fees paid for a private health plan (the “Plan”) would qualify as an eligible medical expense for the purposes of the medical expense tax credit (METC).

You also commented that the requirements for a private health services plan (PHSP) do not appear to be met; therefore it is your view that the fees for the Plan would not qualify for the purposes of the METC.

Our comments:

This technical interpretation provides general comments about the provisions of the Income Tax Act (the Act) and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R12, Advance Income Tax Rulings and Technical Interpretations.

The Canada Revenue Agency’s (CRA) general views regarding the METC are contained in Income Tax Folio S1-F1-C1, Medical Expense Tax Credit (the “Folio”) which can be found on the Government of Canada website at www.canada.ca.

Medical expenses which are eligible for the METC are limited to those described in subsection 118.2(2) of the Act. If a particular expenditure is not described as an eligible medical expense in subsection 118.2(2) of the Act, or if the conditions under which the expenditure would qualify are not met, the expenditure will not qualify for purposes of the METC, even though the expenditure may have been incurred for medical reasons.

Paragraph 118.2(2)(a) of the Act

Paragraph 118.2(2)(a) of the Act allows as an eligible medical expense of an individual, an amount paid to a medical practitioner, dentist, or nurse or a public or licensed private hospital for medical or dental services provided to a patient. As explained in paragraphs 1.26 and 1.27 of the Folio, medical services are diagnostic, therapeutic or rehabilitative services that are performed by a medical practitioner acting within the scope of his or her professional training. Generally, a payment to a medical practitioner is an eligible medical expense when made in respect of a medical service or procedure that relates to an existing condition or illness of the patient.

Paragraph 1.29 of the Folio explains:

“The cost of membership fees or access fees paid to a private medical clinic, where additional fees must be paid when medical services are actually provided, is not an eligible medical expense as it is not considered to be for medical services. However, an amount paid to a medical clinic that can reasonably be considered a prepayment of services that are to be provided over the course of the year and are actually provided in that year (block fees) will generally be an eligible medical expense.”

It is a question of fact as to whether the services provided under a private health plan may qualify as medical services. A review of the contract between the client and the healthcare program provider is required in order to determine if the medical services provided would qualify as eligible medical expenses under paragraph 118.2(2)(a) of the Act. Where the fees paid cannot be attributed to any particular medical service provided to an individual, the fees would not qualify as an eligible medical expense. Payments made to ensure the availability of medical services would not qualify as eligible medical expenses under paragraph 118.2(2)(a) of the Act.

The College of Physicians and Surgeons of Ontario’s defines the term “block fee” as:

“A fee that is charged to patients to pay for the provision of one or more uninsured services from a predetermined set of services during a predetermined period of time. At the time of payment it will not be possible for the patient to know how many, if any, services will be needed.”

It is the CRA’s view that a block fee may qualify as an eligible medical expense for the purpose of the METC where it is paid for eligible medical expenses as described in subsection 118.2(2) of the Act.

It is a question of fact as to whether the amounts paid for the Plan are a block fee since it is unclear whether the amount paid is for a predetermined set of uninsured services during a predetermined period of time.

Paragraph 118.2(2)(o) of the Act

Pursuant to paragraph 118.2(2)(o) of the Act, eligible medical expenses include amounts paid for laboratory, radiological or other diagnostic procedures or services together with necessary interpretations:

• for maintaining health, preventing disease or assisting in the diagnosis or treatment of any injury, illness or disability;
• for the patient; and
• as prescribed by a medical practitioner.

The expenditures must satisfy all of the conditions listed above to be considered eligible medical expenses under paragraph 118.2(2)(o) of the Act. As indicated in paragraph 1.129 of the Folio, the reference to “other diagnostic procedures or services” is generally limited to diagnostic services or procedures of the same class as laboratory or radiological services. In other words, the procedures or services must assist a medical practitioner in making a diagnosis and formulating a course of treatment (where the medical practitioner or dentist determines it is appropriate to do so).

It is a question of fact as to whether certain lab or diagnostic procedures or services may be eligible medical expenses under paragraph 118.2(2)(o) of the Act. Where the fees paid cannot be attributed to any particular lab or diagnostic procedures or services, the fees would not qualify as an eligible medical expense under paragraph 118.2(2)(o) of the Act.

Paragraph 118.2(2)(q) of the Act

As noted in paragraph 1.133 of the Folio, paragraph 118.2(2)(q) of the Act provides that any premium, contribution or other consideration (including GST, PST, HST and premium taxes) that an individual has paid to a Private Health Services Plan (PHSP) for that individual, the individual’s spouse or common-law partner, or a member of the household with whom the individual is connected by blood relationship, marriage, common-law partnership or adoption may be an eligible medical expense.

A PHSP is defined under 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, a hospital care insurance plan, or any combination of such plans. Although, it is a question of fact whether a particular arrangement would satisfy the definition of a PHSP, a PHSP must be a “contract of insurance” or an “insurance plan”.

The CRA considers a plan to be a PHSP where the following conditions are met:

All of the expenses covered under the plan are:

• medical and hospital expenses (medical expenses)
• expenses incurred in connection with a medical expense and within a reasonable time period following the medical expense (connected expenses)
• a combination of medical expenses and connected expenses.
• All or substantially all of the premiums paid (generally 90% or more) relate to medical expenses that are eligible for the METC.
• The plan meets the conditions outlined in paragraph 3 of the Interpretation Bulletin IT-339R, Meaning of private health services plan [1988 and subsequent taxation years].

It is a question of fact whether a particular arrangement may satisfy the definition of a PHSP.

Furthermore, it is unclear whether the fees paid for the Plan are attributable to the cost of medical expenses which normally would otherwise have qualified as a medical expense for purposes of the METC.

We trust that these comments will be of assistance to you.

Yours truly,

Lita Krantz, CPA, CA

Manager, Tax Credits and Ministerial Issues

Business and Employment Division

Income Tax Rulings Directorate

Legislative Policy and Regulatory Affairs Branch

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