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What Is Private Health Services Plan (PHSP)?

Using guidelines outlined by CRA (Canada Revenue Agency), PHSP is a plan that facilitates incorporated businesses and unincorporated businesses with arms length employees in paying their health and dental expenses in a tax-effective and cost-efficient manner.

PHSP works very differently than traditional group or individual health and dental insurance programs in that there are no ongoing premium payments required.

A company enters into a contract with Hub Financial Inc., to provide for the reimbursement of an employee’s health and dental benefits. The company agrees to provide funding for these expense amounts and the applicable fees and taxes (listed under heading Fees and Taxes on Page 4) up to a limit the company sets in advance. The total amount paid by the company may be 100% tax-deductible to the business and the employees may receive a tax free benefit.
Every tax situation is unique and can be quite complex. Clients should always seek independent tax advice before putting a PHSP plan in place or deducting expenses
There are numerous reasons why a business may consider a program like PHSP in lieu of, or in addition to, traditional health and dental alternatives.

1. Currently paying health/dental expenses personally.

Many businesses do not currently have a program in place for employee health and dental expenses. PHSP can provide a mechanism to have these health care expenses paid from a far more tax-efficient place without the company having to qualify or put in place a traditional employee benefit plan.

2. Have investigated insurance but frustrated with expensive premiums.

Many small businesses have investigated health and dental coverage but did not pursue it for the following reasons:
– Company was too small to have real “purchasing power” with the insurance companies
– Company was too new or in an industry where insurers are not interested in providing benefits
– The majority of their workforce had coverage through spousal plans
– Their workforce wanted control over where they could use funds without being restricted by co-insurance or low maximums in each category (i.e. dental, vision care, chiropractic etc.) The PHSP Program can address many of these issues as it does not restrict where the allotted dollars per employee are utilized and can even be used to run through the deductibles, co-insurance and amounts beyond the maximums in a spouse’s plan.

3. Want to reduce or eliminate potential increases in health and dental insurance premiums

Since PHSP is not insurance, some employers are drawn to the concept of reducing their health and dental funding. Employers under a PHSP Program know that they will not receive rate reviews and increases annually based on their employee usage.
These employers may use the PHSP Program on its own or perhaps as a complementing component of their existing traditional plan that could be seeing heavy usage and rate pressure. The PHSP Program may also be used to complement existing traditional coverage by providing reimbursement amounts that were not covered under another plan, such as the deductibles, co-insurance amounts, and amounts beyond the maximums.1

4. Using the Medical Expense Tax Credit through personal income taxes.

Any individual may deduct medical expenses through their income tax. The amount is determined by a CRA formula. This formula creates a threshold in which any amount exceeding that can be eligible for deduction. Currently the threshold formula is calculated by taking the lesser or 3% of an individual’s net income or $2,109 (federally for 2012). The allowable portion is then multiplied by the lowest tax rate percentage for the year. (Ref: IT-519R2)
The CRA does not allow a dollar-for-dollar deduction, whereas anything that is contributed to PHSP may be written off pre-tax dollars, 2 the end result is that PHSP may offer a higher tax deduction for the business. The chart on the link below shows the differences in income and the tax comparison between PHSP and the Medical Expense Tax Credit.2

5. Cost savings comparison
PHSP vs Medical Expense Tax Credit

1 Every tax situation is unique and can be quite complex. Clients should always seek independent tax advice before putting a PHSP plan in place or deducting expenses related to PHSP.

2 For more information, please refer to IT-519R available at the CRA website www.cra-arc.gc.ca

Eligibility:

If your client operates a business, is self employed or an independent contractor with arms-length employees, they may be eligible. The business must be their main source of revenue and an individual is not able to create a company for the sole purpose of a Health and Welfare Trust or a PHSP. There are no minimum or maximum size requirements.

Fees:
– One time set-up fee of $250 payable to HUB Financial Inc.
– There are NO charges per employee at set up
– An administration fee of 10% of the eligible claim amount plus applicable taxes depending on province of residence (see details below)

Taxes:

Ontario
– HST of 13% required on the 10% administration fee
– PST of 8% required on claim amount
– Premium tax of 2% on claim amount and administration fee
British Columbia
– HST of 12% required on the administration fee
Alberta, Manitoba, and Saskatchewan
– GST of 5% required on the 10% administration fee
Atlantic Provinces
– HST of 13% required on 10% administration fee

How does it work?

1. The employee incurs an eligible medical or dental expense and pays the practitioner (pharmacy, dentist etc.). The employee then completes the claim form, attaches the receipt, and submits it to Blue Umbrella Financial Services directly.
– If submitted through the employer, for privacy issues, the plan administrator should only be aware of the total amount to be reimbursed and not the claim details. They would then submit the amount plus administration costs with the appropriate funding to Blue Umbrella Financial Services.
2. Blue Umbrella Financial Services will verify if funds are available for reimbursement under the Employers account. If there isn’t any available, Blue Umbrella Financial Services will send an invoice on amount owing to settle the claim.
3. Upon receipt and verification of an eligible claim and funding, HUB Financial Inc. will reimburse the employee directly.
4. The company receives a statement for all the paid claims, including all administration fees and applicable taxes, for income tax deduction purposes.

Benefit Options
For Incorporated Businesses

Upon set up, the employer must decide on the maximum benefit amount they wish to give each employee. The maximum must be consistent amongst employee class and cannot be discriminating by individual person (e.g. All office workers will receive $2,000 annually). Separation of classes is only available to incorporated companies.
Board Resolution – Sample

For Unincorporated Business with Arms Length* Employee(s)

If the unincorporated business has eligible Arms Length employees, the 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-favored Arms 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.

The general guiding principle for eligibility is that treatment must be conducted for medical reasons, and not for cosmetic purposes. Procedures covered under traditional employee benefits would be covered under PHSP
Other less conventional expenses that would not typically be covered under a traditional benefits plan would be covered under PHSP.
The following list shows a broad range of medical and dental expenses covered under HUB Financial Inc.’s PHSP plan. This list includes but is not limited to the following:

For additional information, please refer to the Canadian Income Tax Act Section 118.2 or go to Revenue Canada’s (CRA) website for IT Bulletin IT519R2.

MEDICAL PRACTITIONERS:

  • Acupuncturist
  • Anesthetist
  • Chiropractor
  • Dentist
  • Dermatologist
  • Gynecologist
  • Homeopath
  • Naturopath
  • Neurologist
  • Masseur
  • Obstetrician
  • Optician
  • Ophthalmologist
  • Optometrist
  • Orthopedist
  • Osteopath
  • Pediatrician
  • Physician
  • Psychiatrist
  • Psychologist
  • Physiotherapist
  • Nurse
  • Speech Therapist
  • Surgeon

MEDICINE & MEDICAL TREATMENT:

  • Alcoholism
  • Birth Control Pills
  • Blood Tests
  • Cardiographs
  • Contact Lenses
  • Contraceptives
  • Crutches
  • Guide Dog
  • Hearing Aids
  • Fertility Drugs
  • Hydrotherapy
  • Insulin Treatment
  • Lab Tests
  • Laser Eye Surgery
  • Metabolism tests
  • Post-natal Care
  • Pre-natal Care
  • Radium therapy
  • Private hospital room
  • Prescription drugs
  • Spinal Fluid test
  • Splints
  • Sterilization
  • Vaccines
  • Vasectomy
  • Vitamins*
  • Viagra*

DENTAL TREATMENT:

  • Braces
  • Crowns
  • Bridges
  • Dental X Rays
  • Dentures
  • Extractions
  • Fluoridation
  • Oral Surgery
  • Gum Treatment
  • Root Canal
  • Fillings
  • Examinations

OTHER EXPENDITURES:

  • Artificial eye
  • Artificial limbs
  • Bathroom aids*
  • Diathermy*
  • Diagnostic Fees
  • Diabetic supplies*
  • Cat Scan
  • MRI
  • Eye Glasses
  • Oxygen Equipment
  • Kidney machine
  • Hearing impaired equipment
  • Heart monitor*
  • Needle & Syringe*
  • Pacemaker
  • Wheelchair
  • X Rays
  • Transportation relative to healthcare
  • Walking aid*

* requires prescription

Note: If you have any questionable expenses not listed on the CRA website, HUB, Blue Umbrella Financial Services recommends contacting your Tax Advisor.

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