250-953-2307The Business Establishes the Plan
The employer establishes a qualifying PHSP for eligible employees. The plan may cover the employee, the employee's spouse or common law partner, and qualifying members of the employee's household.
Private Health
Services Plan (PHSP)
Private Health Services Plan (PHSP)
A Tax Efficient Way for Businesses to Provide Health and Dental Benefits
Medical and dental expenses are an unavoidable part of life. For business owners, incorporated professionals and employers, a properly structured Private Health Services Plan (PHSP) can provide a more tax efficient way to pay eligible health and dental expenses.
A corporation can fund a qualifying PHSP for its employees, including an owner who receives the benefit in their capacity as an employee. When the plan meets the requirements of a PHSP, employee contributions are generally not included in the employee's taxable income, and qualifying medical benefits received under the plan are generally not taxable to the employee.
For the business, qualifying PHSP costs may generally be deductible as a business expense, subject to the Income Tax Act, reasonableness, the structure of the plan and the circumstances of the employee receiving the benefit.
How a Private Health Services Plan Works
A PHSP is an employer sponsored arrangement designed to reimburse eligible medical and dental expenses. The plan must meet the requirements established under the Income Tax Act and CRA administrative guidance.
The Employee Incurs an Eligible Medical or Dental Expense
The employee or an eligible family member receives an eligible medical or dental service and submits the expense through the plan.
The Business Funds the Benefit
The employer funds the reimbursement through the PHSP according to the terms and limits of the plan. For an incorporated business, the cost can be paid with corporate dollars.
The Employee Receives Reimbursement
Eligible expenses reimbursed under a qualifying PHSP are generally received without being included in the employee's taxable income.
The Business Claims the Appropriate Expense
Subject to the applicable tax rules and the circumstances of the plan, qualifying employer costs may generally be deductible in computing business income.
Why Business Owners/Consider a PHSP
- Pay eligible health and dental costs with corporate dollars, where the plan is properly established through the business
- Provide qualifying benefits without creating a taxable employee benefit
- Potentially deduct qualifying plan costs as a business expense
- Cover a broad range of eligible medical and dental expenses, subject to the terms of the plan and tax rules
- Provide benefits for eligible family members
- Create a formal employee benefit program rather than paying personal medical expenses directly from after tax income
Important Rules for Owner Managers and Shareholders
The tax treatment of a PHSP is particularly important when the person receiving the benefit is both a shareholder and an employee.
- CRA distinguishes between benefits received because someone is an employee and benefits received because someone is a shareholder. Where an employee shareholder receives PHSP benefits in their capacity as an employee, the normal PHSP treatment may apply. If the benefit is considered to have been received in the person's capacity as a shareholder, the value may instead be treated as a taxable shareholder benefit and the related corporate cost may not be deductible.
- For this reason, the plan design, employee eligibility, benefit levels and the relationship between shareholder employees and other employees should be considered carefully.
What Expenses Can a PHSP Cover?
A qualifying PHSP must primarily cover eligible medical and hospital expenses and qualifying expenses connected with those medical expenses. CRA generally requires all or substantially all, 90 percent or more, of the premiums or contributions under the plan to relate to expenses eligible for the Medical Expense Tax Credit.
Depending on the plan and the applicable tax rules, eligible expenses may include items such as prescription drugs, dental services, vision care, physiotherapy, chiropractic services, certain medical devices and other qualifying medical expenses.
Who Should Consider a PHSP?
- Incorporated business owners and professionals who currently pay substantial medical and dental expenses personally
- Businesses that want to provide health and dental benefits to employees
- Owner managers who want to examine whether eligible family medical expenses can be funded more efficiently through their corporation
- Small businesses that want a benefit structure tailored to their workforce and budget
- Employers seeking a tax efficient way to reimburse qualifying medical and dental expenses
PHSP Planning With InsureBizz
At InsureBizz Financial Inc., we look beyond the reimbursement itself. We consider the ownership of the business, the employee structure, family coverage needs, expected medical and dental expenses, plan limits and the tax treatment of the benefits.
For shareholder employees, particular attention should be paid to whether the benefit is being provided in the person's capacity as an employee and whether the plan structure supports that treatment.
Where appropriate, the arrangement should be reviewed with your accountant or tax advisor to ensure the plan is consistent with your corporation's circumstances and current tax requirements.
Turn Health and Dental Costs Into a Business Benefit
A properly structured PHSP can allow a business to provide meaningful health and dental coverage while using corporate dollars more efficiently and avoiding a taxable benefit to the employee where the applicable requirements are met.
Contact InsureBizz Financial Inc. to explore whether a Private Health Services Plan is appropriate for your business and family.