Private Health Services Plan:
A Private health Services plan is a program for the Self Employed individuals and Small businesses in Canada allowing 100% deduction of cost of operating a health benefit plan as a business expense. The reimbursement payments from the PHSP to your family members are not considered income, so no tax is paid. A PHSP does not have the income restrictions and thresholds for medical expenses like personal tax returns even though they use the same allowable medical expenses list defined by Canada Revenue Agency.
Who Qualifies for PHSP
Anyone in a small or medium sized business in Canada can make use of a Private Health Services Plan (PHSP) to reduce their taxes and/or contain their health benefit costs for their employees.
You Qualify for a PHSP in these Situations:
1. Corporations - Limited Company - Professional Corporations
The size of the company does not matter. From small, one-person consulting firms to a business with numerous employees; they all qualify. If you pay taxes and have medical expenses, you qualify. For corporations there are no restrictions on the amount that can be claimed in any given year.
Small "Non Arms Length" companies can reduce their personal taxes substantially. Small and medium businesses with employees can offer affordable health benefits as a worker retention strategy.
• If your company already has a health benefit plan you may use a PHSP to re-structure and contain the rising premium cost of your existing benefit plan.
2. Self Employed - Sole Proprietorship or Partnership
Although unincorporated businesses have some restrictions, you can still benefit from operating a PHSP. To qualify, you must be actively engaged in your business on a regular and continuous basis AND in the current or previous year: " Derive more than 50% of your total income from the self employed business,OR " Your income from sources other than self-employment is $10,000 or less
For the purposes of this calculation, the term income is your Net Income (Line 233) with some exclusions. The specifics are described in the T4002 GuideFor unincorporated businesses, there are also restrictions on the amount that can be claimed in any given year: The owner/manager may claim $1500 The spouse may claim $1500 Children under 18 may claim $750
• Other members of the household that are 18 or over may claim $1500
These limits can be exceeded if the proprietorship has additional "arms length" employees in the business who are included in the Private Health Services Plan (PHSP).
How PHSP works
The Covered Employee (or member of their household) obtains a medical service which they pay directly to a health service provider, such as a dentist, doctor or optometrist.
It can be by cash, cheque or credit card. Let's use $100 for an example.
A receipt is obtained from the health service provider. At this point the employee is out-of pocket $100.The Covered Employee submits a health benefit claim with the original receipt to the PHSP planholder (the business).
The PHSP planholder forwards the original receipts by postal mail along with a business cheque totaling $105.25 (the medical expense $100 + the Brock Health fee $5 + GST 25 cents on the fee only).
Now the planholder is also out-of pocket $105.25.Brock Health adjudicates the claim, earns their fee and sends a tax free reimbursement cheque ($100) to the Covered Employee.
The employee is fully reimbursed and is no longer out-of-pocket anything.
From the Covered Employee's viewpoint, it is identical to commercial health benefit insurance except quicker.The PHSP planholder remains out-of-pocket. In return, the PHSP planholder (the business) receives a tax receipt of $105.25 from Brock Health at the end of their fiscal year.
The net effect of these transactions is the PHSP business owner has now borne the cost of providing health care benefits to its Covered Employees.
For small business owners with no employees, this means your family health benefits are now tax free. For businesses with employees, the 5% fixed fee combined with caps established by the PHSP planholder makes this much more economical than a premium-based health benefit insurance plan.
