Are you a small business owner who is tired of paying taxes on your predictable health and dental expenses? If so, a Private Health Services Plan (PHSP) may be the answer.
A Private Health Services Plan is a tax-free vehicle for financing your healthcare costs. It was introduced by the Canada Revenue Agency (CRA) in 1989 and is one of the most popular forms of Health Spending Accounts (HSA) in the Canadian marketplace.
So what does it do?
It allows a small business – such as a proprietorship, a partnership, a corporation, etc. – to set aside pre-tax funds to pay the health and dental expenses for the owners and staff. With these funds, you can submit any CRA-approved medical expenses to your administrator in order to be paid and reimbursed, converting the costs to a tax-free expense.
Private Health Services Plans Offer Significant Tax Savings
Imagine for a moment that you are an incorporated business owner in the province of Ontario with $2,000 of CRA qualified medical expenses. For this example, your annual income is $85,000 and you pay a Marginal Tax Rate of $43.41%.
In order for you to pay a $2,000 medical expense, you would have to earn $3,534 of gross income. There is a huge difference between those two numbers. However if you had a PHSP set up, instead of paying $1,534 in taxes you would only pay $435 in total fees for an overall savings of $1,099.
Based on this example, any business can save a significant amount of gross income. Additionally, all the costs are 100% tax deductible for the employer and a non-taxable benefit to the employee.
Note: Some PHSP’s are subject to an initial one time set up fee of $250.
Is there a limit to what you can submit?
If you are incorporated, there is no limit per individual. But if you are not incorporated, you must follow the family limits of $1,500 per family member who is 18 years of age and older and $750 per family member under the age of 18.
Example: In a household of two adults and three children, the total annual claimable amount would be (2 x $1,500) + (3 x $750) for a grand total of $5,250.
Two Funding Options For Your PHSP
There a couple options in funding a PHSP. The first is to set aside a certain dollar amount every month. This allows you to treat the PHSP as a mini bank account that you can access for the expenses you incur. If there is a surplus, your claims will be reimbursed. If there is no money in the account, then you will have to wait until there in money. This can be paid for through pre-authorized debit or cheque.
The second option is to pay-as-you-go. In this funding method, you are only charged if you submit expenses. Either a credit card or an electronic funds transfer can be applied. If you decide to use a credit card, there is an opportunity to earn reward points if you are enrolled in such a program.
Your PHSP Is Not Insurance
PHSP’s are not insurance. While insurance is intended to provide coverage for the unpredictable, PHSP’s do not have this advantage. Instead, your PHSP is a way for you to process predictable health and dental expenses in a tax preferred method.
However, most PHSP’s do have an optional insurance rider that can be purchased to provide coverage for emergency scenarios. The additional coverage can be added to the PHSP for an additional monthly premium. While this extra coverage typically carries a rather large deductible, it can be an excellent addition if you are concerned about any possible unpredictable claims in the future. Some items may include out-of-country expenses, expensive prescription drugs, hospital coverage, etc.
Do you have any questions?
If you have any questions or comments about what I have written here, please contact me directly. And if you are interested in setting up your Private Health Services Plan so you can stop paying the taxes on your health and dental expenses right away, let me know and I will be able to assist you. All the best,
Michael H. Kettner - Senior Partner GroupHEALTH Kettner Benefits
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