Whitepaper: New CRA Guidance on Private Health Plans (PHSPs)

On July 24, 2015, CRA released a new Income Tax Folio S2-F1-C1 entitled Health and Welfare Trusts. This folio replaces and cancels IT Bulletin IT-85R2, Health and Welfare Trusts for Employees.

This information relates to Health and Welfare Trusts, which are used less often amongst private employers than many realize. Health and Welfare Trusts are used when funding for various benefits is done in advance and in a trusteed environment. Most private employers will simply fund benefit plan costs as they are incurred.

So why are we interested in S2-F1-C1: Health & Welfare Trusts?

In moments like these, CRA can take the opportunity to clarify administrative positions on various matters for taxpayers. Private Health Service Plans (more commonly known as health plans or health spending accounts) can live within a Health and Welfare Trust and there were a number of comments made about PHSPs within this folio. Here they are in summary:

Section 1.5 Private Health Service Plans.

CRA added the comment that there are no minimum employees that must be covered under a PHSP and referred readers to IT-339R2 for further reading. This helps dispel the myth that a plan needs more than one member and reaffirms IT-339R2 as a primary source document for CRA’s administrative position. One member plans are alive and well.

Section 1.4 Tax Implications to Employee-Shareholders.

Participation by employee-shareholders is affirmed and treatment as an employee contingent on three new items put into S2-F2-C1 as clarification.

First, benefit coverage needs to be comparable in nature, amount and cost-sharing to other similar-sized businesses who perform similar services and have similar responsibilities. This was not new, nor does it give much guidance on how much is too much when it comes to health plan limits. We continue to believe that reasonable plan limits would normally fall below $10,000 under most scenarios.

The second item stated that participation should be offered to all employees, or there should exist a logical explanation as to why it was not. This affirms our suspicions about CRA’s perspective on exclusionary plans. We continue to advise that excluding seasonal, non-permanent and/or part-time employees is fine, but solid reasons must exist to exclude other employees from the plan (which there often are).

And third, the benefit coverage for shareholder-employees should be comparable to non-shareholder employees who perform similar services and have similar responsibilities. Another perspective that we have followed, ensuring classes within the employees has terms, conditions and quantum that is logical and relative.


We welcome the additional clarity, especially when shareholder-employees are concerned. Single shareholder-employee plans continue to function, assuming plan terms and limits are reasonable. Further, creating plan classifications based on employment responsibilities continues to be feasible, again assuming rational separations between classes.