In February 1998 while delivering the federal budget, the Honourable Paul Martin, P.C., M.P., and Finance Minister said "The number of self-employed Canadians is growing daily. Many operate through unincorporated businesses. However, unlike those businesses that are incorporated, they cannot deduct premiums they pay for their supplemental health and dental plans. This is unfair. Starting this year, self-employed Canadians will be able to deduct these premiums from their business income."
The Private Health Services Plan (PHSP) was therefore designed to fill the need of the sole proprietor and unincorporated business owner. In order to qualify under a PHSP, Revenue Canada has implemented rules to govern its use and they are as follows:
Note: sole proprietors, partnerships, independent contractor and any unincorporated businesses apply below
1. Element of Insurance:
Canada Revenue Agency (CRA) requires that there be an element of insurance in order for the plan to exist. HUB Financial Inc. therefore requires that Emergency In Province and Out of Province Insurance (Stop Loss/Travel Medical) must be purchased. Click here for Emergency In Province and Out of Province (stop/loss travel medical) .
2. Income Requirements:
- Your net income from self-employment (excluding losses and PHSP Deductions) for the current year is more than 50% of your total income.
- Your income from sources other than self-employment is $10,000 or less.
3. Benefit Maximums
i) Sole Proprietor without employees
A Sole Proprietor will have an allowable maximum based on how many dependants the individual has. Maximums are as follows:
$1,500 for sole proprietor
$1,500 for dependent spouse
$750 per dependent child or $1,500 for child over the age of 18 who is a full time student until a maximum age of 25
Example
For a family of 4 people which consisted of husband and wife and two minor children, the overall maximum that can be spent each year will be $4500 (2 adults at $1500 and 2 children at $750) Any member of the family can use the full amount
The above amounts are based on the program being in place for the entire year. If the program is structured 6 months into the year, then the maximums would be 50% (#days plan in place/365 days) of the above ceilings.
ii) Sole Proprietor with Arms Length* Employee
If the unincorporated business has eligible arm’s length employees, CRA sets the owner maximum in a differing manner. The owner’s eligible amount in this case would be the lowest cost-equivalent coverage provided to their least-favoured arm’s length employee. For example, if the owner provides only $500 to an employee, then their personal deduction ability will also be limited to $500 per annum.
* arms length employee is one that is unrelated to the sole proprietor