PHSP INFORMATION FOR ACCOUNTANTS

The Key Pieces of Legislation

The Private Health Services Plan (PHSP) offered by Brock Health Administration Ltd. is structured to qualify as a "private health service plan" as defined in Sub section 248 of the Income Tax Act of Canada. The enabling legislation for a PHSP is discussed in the Interpretation Bulletin IT 339R2. Brock Health Administration PHSP operates as a "cost plus" plan. We do not offer Health Spending Accounts nor hold trust payments on account. Incorporated businesses have had deductibility of health benefit plans for some time, but this was extended to self employed sole proprietorships in 1998 with some restrictions. These restrictions are discussed in the Canada Budget Notes from 1998 and in Sub section 20.01 of the Income Tax Act of Canada.

The discussion of eligibility for claiming a specific health expense is discussed in the Interpretation Bulletin IT 519R2.

The tax free operation of a Private Health Services Plan (PHSP) for planholders and covered employees is specifically explained in IT-85R2.

Some excellent information and examples for claiming PHSP expenses are provided by Canada Revenue Agency in the T4002 Business and Professional Income Guide. The specific discussion of PHSP deductions can be found under line 9270 - Other Expenses.

The Key Concept

In most cases, Canada Revenue Agency expects a service business to trigger taxation at some point in a transaction. In this case, both the recipient (employee) and the employer (PHSP Planholder) escape taxation under the PHSP enabling legislation shown above.

-Under a PHSP, health care expenses become classed as tax free medical plan re-imbursement and not a taxable benefit to the employee.
-A PHSP and any expenses incurred for its operation become tax deductible to the business.

The Benefit

If the cost to the business of operating the PHSP is less than the reduction in personal taxes paid by the employee then a tax saving is achieved. This is particularly beneficial to the "one-person consulting firms" where the benefit is obvious, significantly large and immediate.

The Coverage

The expenses eligible for re-imbursement are the same as the Medical Expense Tax Credit (METC). The eligible expenses are quite broad and compare extremely well with ordinary employer health insurance. Additionally they are 100% deductible and have no percentage amount or threshold of 3% of taxable income.

The Caveats

As always with Canada Revenue Agency, the reasonableness of the deduction claimed is very important. The Planholders accountant is the best person to provide this advice. When no "arm's length" individuals are employed by the corporation the reasonableness should be especially prudent. For self employed sole proprietorships or unincorporated partnerships, there are restrictions on the dollar value of the deduction. See Sub section 20.01 of the Income Tax Act of Canada for details. These restrictions are relaxed if "arm's length" employees are included in the firm.

Accountants Benefit

If you wish to provide a value added service to your clients, Brock Health Administration will reduce the $100 enrolment fee charged to your referred clients. Contact us now to make immediate arrangements, for offering this service to your clients.