PHSP: Deduct Medical expenses

        Reduced benefits in Public Health Care programs are increasing the number and level of services not covered by Provincial Health Care plans.

            In his February 24,1998 federal budget speech federal finance minister Paul Martin announced that sole proprietors and incorporated individuals can deduct Private Health Services Plan (PHSP) cost from their business income.

            That can mean real tax savings for Canadian business owners - provided the regulations are applied correctly. 

            Under the section 248 (1) of the Income Tax Act and Interpretation Bulletin  IT-339R2 referred to as "A Private Health Services Plan" (PHSP), individuals dong business are allowed to deduct amounts paid for their PHSP in calculating business income.  The PHSP became law two years ago.  It was designed to allow small business owners the opportunity to deduct family dental, medical and drug expenses from business income. 

            This was done to allow the small business owner some of the advantages usually afforded only bigger businesses with comprehensive group insurance plans.  Many small business owners are paying for medical services in hard earned after - tax dollars.  Some have a medical insurance plan, but still reach into their pocket for the 'patient pays' portion of the bill. 

            However, businesses with their own Private Health Services Plan have no premiums to pay, no restrictions, and no waiting periods or medical history requirements.  Business owners must recognize that a PHSP is not insurance.  It is taking the medical and dental expenses incurred, documenting the payments gong through a trust and then receiving a 'receipt' to deduct these expenses directly from the business income. 

            PHSP's can now be obtained through a number of trust companies and is available to both incorporated and sole proprietor - businesses (when set up correctly).  Only the business owner can implement this plan, but employees can be part of the plan - the business owner deciding to what degree they wish to include the employees.

Only covered expenses actually incurred are paid by the business owner (i.e. there is no ongoing cost where there are no claims made), no monthly premiums are required, and plans can cover the entire fiscal year regardless of when they are set up within that year.  However, there is a one-time fee and a 'usage' fee of 10 per cent to 15 per cent charged by the company setting up the PHSP.  These costs plus all claims paid are totally deductible by the business. 

            Businesses hoping to qualify for a tax deduction must meet several conditions.  These include: the individual must be actively engaged alone or as partner in business and have employees; PHSP cost will be deductible to a maximum of $1,500 each for the self employed and his/her spouse and $750 for each child and equivalent amount must be given to employee(s); If the business owner is incorporated, PHSP cost will be deductible without any limitation, but $10,000 is suggested maximum per family; PHSP costs will be deductible only if the plan is purchased from a third party in the business of selling insurance or if the plan is operated by a trustee who is in the business of operating such plans; Where a deduction for PHSP cost is claimed, the amount will not also qualify for medical expense tax credits.

Jivko Jeliazkov is an independent financial advisor and President of Beacon Benefits Group in Victoria BC.  His opinions are his own.  E-mail comments to jivko@bbg.ca or call 361-9936 or toll free 1-877-361-9936.