Simply put, a Private Health Services Plan (PHSP), also known as a Health Spending Account (HSA), allows an employer to provide a tax-free benefits package to their employees to use on medical expenses. PHSP’s are available for both incorporated businesses or those without employees. 

These alternative health insurances are currently used by thousands of small business owners across Canada and provide a cost-effective way to provide health and dental benefits to your employees. These plans are fully tax-deductible for the business and received 100% tax-free by the employees with no premiums, hidden fees, copay, or complex policies.

For entrepreneurs and self-employed individuals, this can be an effective means of cutting your taxes and reducing your medical costs. Writing off health and dental expenses can be seen to create savings of more than 30% on your dental and medical-related expenses.

Alternatively, those companies with many employees, a PHSP can be used to offer extra incentives and benefits for recruiting and retaining valuable employees. This provides cost control for the employer and flexibility for their employees. 

So, with all that said, what’s stopping you from starting your own PHSP account? 

Who can qualify for a Private Health Services Plan (PHSP)?

Businesses are suitable for a PHSP if they:

1. Own an incorporated business
2. Pay medical bills
3. Receive T4 Income or have employees to who they pay a salary.

While the primary goal for these plans is to provide health and dental benefits, they also operate based on the principles of tax planning. Because of this, PHSP’s work differently based on the structure of your business.

For those one-person incorporated businesses, a PHSP turns your after-tax personal medical expenses into a before-tax business deductible. This means that as an owner you are able to withdraw funds directly from your company account to pay your personal medical expenses, bypassing any need to pay income tax.

This saves you money in 3 ways:

1. Savings on tax by deducting 100% of your medical costs
2. Avoids high premiums associated with traditional health insurance plans
3. Eliminate expensive deductibles

How is a PHSP effective as a one-person business?

As a business owner of a sole proprietorship, you stand in the unique position of being able to dictate the expenses and tax-deductible decisions that impact your corporate goals vs. your personal wellbeing. A PHSP offers an incentivized program to provide your company with health spending benefits that can be used to:

• Deduct your family’s medical expenses 100%
• Lower your overall personal and business taxes
• Have comprehensive medical coverage
• Reduce your costs that go towards current health and dental insurance premiums
• And if applicable, supplement plans for your spouse who is employed outside of your business

How does a PHSP work for businesses with employees?

As we covered previously, a Health Spending Account can offer a great incentive program for recruiting and retaining talent in your office. These packages can provide flexibility and convenience to your employees in how they choose to spend their tax-free benefits. An HSA/PHSP can cover costs for appointments such as chiropractors, massage therapy, naturopathy, physiotherapy, podiatrist, dental, vision care, and prescription drugs. 

As an employer, you can then dictate how much and who these benefits are assigned to and track claims as they are made with no premiums to worry about, saving you money and supporting your staff. 

What are the benefits of a PHSP vs. private health insurance?

There are several differences between these two options, but the primary benefits for a Health spending account vs. private health insurance are:

• Private health insurance members are faced with recurring premiums
• Limitations set on expense eligibility
• Restrictive policies
• High deductibles
• Timely claiming process

All of which can be avoided within your PHSP.

PHSP and business taxes

For a business that has a PHSP, you are able to deduct premiums paid to the PHSP if you fulfill the following conditions: 

• Your net income for the previous or current year is more than 50% of your total income
• If you have income from other sources, it has to be less than or equal to $10,000 for the current or previous year
• Premiums that are paid are done so to insure yourself, your spouse or common-law partner or a member of your household

For more information about deductibles for your business check out this CRA page. Also, the medical expenses will need to qualify for the medical expense tax credit (METC). 

PHSP’s in summary.

Private Health Services Plans provide opportunities for businesses and business owners to build value for their team through a tax incentivized means. Instead of paying monthly premiums for health coverage, a PHSP provides the opportunity to eliminate income tax on your medical expenses and forward greater benefits to you and your team. 

If you have further questions on whether a PHSP is right for you and your business,  get in touch with our team at Headquarters Inc. and we would be happy to help!