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Private Health Services Plan (PHSP) Premiums

(Excerpt from CRA Guide T4002-15)

Sole Proprietors

You can deduct premiums paid or payable to a private health services plan (PHSP) if you meet the following conditions:

your net income from self-employment (excluding losses and PHSP deductions) for the current or previous year is more than 50% of your total income*; or

your income from sources other than self-employment** is $10,000 or less for the current or previous year;

you are actively engaged in your business on a regular and continuous basis, individually or as a partner; and

the premiums are paid or payable to insure yourself, your spouse or common-law partner, or any member of your household.

Notes

* To make this claim, calculate your total income as follows:

the amount from line 150 of your 2014 or 2015 income tax return, whichever applies, before you deduct any amounts for PHSPs; minus

the amounts you entered on lines 207, 212, 217, 221, 229, 231, and 232 of your 2014 or 2015 income tax return, whichever applies.

** To make this claim, calculate your income from sources other than self-employment as follows:

the amount from line 150 of your 2014 or 2015 income tax return, whichever applies, before you deduct any amounts for PHSPs; minus

the amounts you entered on lines 135, 137, 139, 141, 143 (excluding business losses that reduced the net amount reported on those lines), 207, 212, 217, 221, 229, 231, and 232 of your 2014 or 2015 income tax return, whichever applies.

You cannot claim a deduction for PHSP premiums if another person deducted the amount, or if you or anyone else claimed the premiums as a medical expense.
For your premiums to be deductible, your PHSP coverage has to be paid or payable under a contract with one of the following:

an insurance company;

a trust company;

a person or partnership in the business of administering PHSPs;

a tax-exempt trade union of which you or the majority of your employees are members; or

a tax-exempt business organization or tax-exempt professional organization of which you are a member.

For more information on PHSPs, see Interpretation Bulletin IT-339, Meaning of “Private Health Services Plan” (1988 and subsequent taxation years).

For this claim, the following terms apply:

Arm’s length employees are, generally, employees who are not related to you and not carrying on your business with you, for example, as your partners.

Qualified employees are arm's length, full-time employees who have three months’ service since they last became employed with a business carried on by you, a business in which you are a majority interest partner, or a business carried on by a corporation affiliated with you. Temporary or seasonal workers are not qualified employees.

Insurable persons are people to whom coverage is extended and who are either:

– qualified employees;

– people who would be qualified employees if they had worked for you for three months; or

– people carrying on your business (including yourself and your partners).

How to calculate your maximum deduction for PHSPs

The following sections explain how to calculate your maximum PHSP deduction based on whether you had employees and whether you insured them throughout the year or for part of the year. Find the section that describes your situation.


Note

All PHSP deduction limits and calculated limits must include applicable taxes in the total.

If you did not have any employees in 2015


Your PHSP deduction is restricted by an annual dollar limit. The limit is a maximum of:

$1,500 for yourself;

$1,500 for your spouse or common-law partner and each household member that is 18 years of age or older at the start of the period that they were insured; and

$750 for each household member under the age of 18 at the start of the period.

The maximum deduction is also limited by the number of days the person was insured.
Calculate your allowable maximum for the year by using the following formula:

  A   × (B + C), where:
365

A is the number of days during the period of the year that you insured yourself and your household members, if applicable, but insured less than 50% of your employees;

B equals $1,500 × the number of people covered under the plan that includes you, your spouse or common-law partner, and your household members that are 18 years of age or older; and

C equals $750 × the number of household members under the age of 18 that were insured during the period.

Example 1

Edwin was a sole proprietor who ran his business alone in 2015. He had no employees and did not insure any of his household members. Edwin paid $2,000 for PHSP coverage in 2015. In his case, the coverage lasted from July 1 to December 31, 2015, a total of 184 days.

Edwin’s maximum allowable PHSP deduction is calculated as follows:

184 × $1,500 = $756
365

Even though Edwin paid $2,000 in premiums in 2015, he can only deduct $756 because the annual limit is $1,500 and he was only insured for about half of the year. If he had been insured for the entire year, his deduction limit would have been $1,500.

Example 2

Tony was a sole proprietor who ran his business alone in 2015. He had no employees. From January 1 to December 31, he insured himself, his wife, and his two sons.

Tony paid $1,800 to insure himself, $1,800 to insure his wife, and $1,000 for each of his sons.

One of his sons was 15 years old and the other turned 18 on September 1.

Tony’s PHSP deduction is limited to the following amounts:

$1,500 for himself;

$1,500 for his wife;

$750 for his 15-year-old son; and

$750 for the son who turned 18.

The $750 limit applies because he did not turn 18 until after the insured periods.

If you had employees throughout 2015

If you had at least one qualified employee throughout all of 2015, and at least 50% of the insurable persons in your business were qualified employees, your claim for PHSP premiums is limited in a different way.

Your limit is based on the lowest cost of equivalent coverage for each of your qualified employees.

Use the following steps to calculate your maximum allowable claim for the PHSP premiums paid or payable for yourself, your spouse or common-law partner, and your household members.

For each of your qualified employees, do the following calculation:

X × Y = Z, where:

X equals the amount you would pay to provide yourself, your spouse or common-law partner, and your household members with coverage equal to that provided to a particular employee and his or her spouse or common-law partner and household members;

Y equals the percentage of the premium you pay for that particular employee; and
Z equals your limit based on that particular employee.

If you had more than one qualified employee, you have to do the X × Y = Z calculation for each employee. Your limit is the least of the amounts you calculate for each employee.

Example 1

You have one qualified employee. To provide yourself with coverage equivalent to his, you pay a premium of $1,800.

You pay 60% of your employee’s premium.
Your deduction limit for yourself is $1,080, calculated as follows:

$1,800 (amount X) × 60% (amount Y) = $1,080 (amount Z).

The maximum you can claim is $1,080 if you had only one qualified employee.

Example 2

You have three qualified employees—Jack, Jill and Sue.

The following table shows how much you would pay for coverage equivalent to each of theirs and the percentage of each employee’s premium that you pay.

 


Name of

Employee

Cost of equivalent

coverage for

yourself

(X)

% of the

employee’s

premium you pay

(Y)

Jack

$1,500

20%

Jill

$1,800

50%

Sue

$1,400

40%

You have to do X × Y = Z calculation three times:

For Jack: $1,500 × 20% = $300

For Jill: $1,800 × 50% = $900

For Sue: $1,400 × 40% = $560

Your limit is $300, the least of the amounts calculated for the three employees.


Note

If you have a qualified employee with no coverage, you cannot claim your PHSP premiums as a deduction from self-employment income. However, you may be able to claim them as medical expenses.

If you had employees throughout 2015, but the number of insurable arm’s length employees was less than 50% of all

the insurable persons in your business, your maximum allowable deduction is the lesser of the following two amounts:

Amount 1

Determine this amount by using the following formula:

  A   × (B + C), where:
365

A is the number of days during the period of the year that you insured yourself and your household members, if applicable, but insured less than 50% of your employees;

B equals $1,500 × the number of people covered under the plan that includes you, your spouse or common-law partner, and your household members that are 18 years of age or older; and

C equals $750 × the number of household members under the age of 18 that were insured during the period.

Amount 2

If you had at least one qualified employee, amount 2 is the lowest cost of equivalent coverage for each qualified employee, calculated by using the X × Y = Z formula on this page.

If you did not have at least one qualified employee, the limit in Amount 1 will apply.

If you had employees for part of the year

For the part of the year that you had at least one qualified employee and your insurable arm’s length employees represented at least 50% of all the insurable persons in your business, calculate your limit for that period by using

the X × Y = Z formula on this page, “If you had employees throughout 2015.”

For the rest of the year that you had no employees or that your insurable arm’s length employees represented less than 50% of all of the insurable persons in your business, your deduction limit for that remaining period is the lesser of Amount 1 and Amount 2, calculated the same way as in the previous section.

Undeducted premiums

If you deduct only part of your PHSP premium on line 9270, and you paid the premium in the year, you can include the undeducted balance when you calculate your non-refundable medical expense tax credit.

For more information, see Line 330 in your General Income Tax and Benefit Guide – 2015.

 


Calgary, Alberta
Roy Olney or Chris McKay

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Northern Alberta
Len Ehrmann

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Dan Gauvreau

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Lorraine Ronning

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Eastern Canada

Carrie Gauvreau

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