Tax Savings for the Self Employed Business Owner             

A Private Health Services Plan (PHSP) allows you to expense your medical and dentals costs (for you and your employees) through your company.
This is a simple, cost-effective way to allow today’s Canadian business owners to provide flexible health care benefits to their employees with huge tax savings. 

In order to utilize a Sole Proprietor PHSP CRA states that a mandatory insurance component must be part of the plan. For this reason every Sole Proprietor PHSP must partake in one of CustomCare's auxiliary products: Travel and Catastrophic Insurance or Critical Illness coverage as well as our Wait List Insurance. click here for more details.

To qualify for this deduction you must meet one of the following parameters:

• Your net income from businesses in which you are regularly and actively engaged must represent at least 50% of your net income for the year
• Your net income from sources other than business does not exceed $10,000

The government has also established annual maximum tax-deductible PHSP limits, and they are as follows;

Two Types of Plans for the Self-Employed

Definitions

Arm's Length Employees
An arm's length employee is one who is unrelated to the shareholder or owns no shares.

Sole Proprietor
A self-employed person with no employees other than family members.

Self-employed without employees

If you are a sole proprietor you are permitted to deduct specific amounts from your income depending on the number of dependents you have. Your deduction limits are as follows:

$1,500 for yourself
$1,500 for your spouse
$1,500 for children who are 25 years of age and younger as long as they are unmarried and a full time student
$750 for dependent children under the age of 21, unmarried and living at home

Example

An unincorporated business owned by you. You are married with two children, ages 12 and 14. You are permitted to deduct from your business income (your income) up to $4,500 in total. $1,500 for you as proprietor, $1,500 for your spouse, and $750 for each of your children.

Self employed business (or unincorporated business) with arm's length employees
If you have arm's length employees (unrelated to you) on a full time basis your deduction (you and your family members) will be determined based on the coverage you provide to your employees. In other words, the amount that you can deduct must be equivalent to what your arm's length employees receive.

Example
You are the owner of an unincorporated business with two arm's length employees. Under existing legislation, in order for you to be able to deduct some or all of your family’s medical and dental expenses from your income you must provide your employees with equivalent coverage.

Partnerships
If you are a member of a partnership (for deductibility purposes your spouse could not be considered a partner – rather a dependent) you will claim the deduction personally.

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