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 complicated Health Trusts. 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 Income Tax Folio S1-F1-C1.
The tax-free operation of a Private Health Services Plan (PHSP) for planholders and covered employees is specifically explained in Income Tax Folio S2-F1-C1.
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 by searching on PHSP.
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 reimbursement and not a taxable benefit to the employee. A PHSP and any expenses incurred for its operation become tax-deductible to the business.
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 business” such as consultants, self-employed or professional corporations where the benefit is completely for their immediate family.
The expenses eligible for reimbursement are the same as the Medical Expense Tax Credit (METC). The eligible expenses for a PHSP are quite broad and often compare better than Insured Plans for health & dental benefits carried by many employers. Additionally, the eligible expenses are 100% deductible (including the administration fee) and have no percentage coverage amounts or the threshold of 3% of taxable income of the METC.
As always with Canada Revenue Agency, the reasonableness of the deduction claimed is very important. The Planholder’s 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 employed by the firm and covered by the PHSP.
If you wish to provide a value added service to your clients, Brock Health Administration will reduce the $100 registration fee charged to your referred clients. Contact us now to make immediate arrangements, for offering this service to your clients.