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 – a Limited Company – or 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 – a 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 comparison refers to the T1 General tax return. You should compare your Total Income to the sum of the Net Income from Self Employment. The T1 General form changes from year-to-year but the amounts are around Box 150 compared to the sum of Boxes 135 + 137 + 139 + 141 + 143. There are some exclusions and the specifics are described in the T4002 Guide.
For 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) provided the amounts allotted to those “arms length” employees all exceed the limits set out above.