A Private Health Services Plan (or PHSP) is not insurance. It is a clever tax-saving vehicle created by the Canadian government that lets small business owners and other self-employed individuals turn medical expenses (including insurance premiums) into 100% deductible business expenses. By setting up a PHSP through a third party provider (such as McGill Health Services), individuals can now process a wide range of medical expenses (for the entire family) through their business. This offers significant tax savings over paying for them with after-tax dollars.

PHSP's were once only available to corporations. Fifteen years ago, changes to the Canada Revenue Act extended the benefits of PHPS's to small business owners and other self-employed individuals. Surprisingly few are unaware of these changes and the dramatic tax savings they offer.

HOW IT WORKS

In the simplest terms, a PHSP is a trust account set up by a business owner or self-employed individual and administered by a qualified third party. The account is either pre-funded based on estimated expenses or funded on an as needed basis. When an individual or his or her family incurs a medical expense not covered by a comprehensive insurance plan, the receipt is submitted to the plan administrator and reimbursed from the PHSP, thereby becoming a 100% tax-deductible business expense. The list of expenses that are covered by a PHSP is extensive and spans many areas of traditional and non-traditional healthcare.

 A SIMPLE EXAMPLE OF POTENTIAL TAX SAVINGS 

THE PERSONAL INCOME TAX METHOD

 

Taxable Income

$60,000

$100,000

$120,000

Medical Expenses

4,750

4,750

4,750

Deduct 3% of taxable income to a maximum of $1,770

1,770

1,770

1,770

Eligible Medical Expenses

2,980

2,980

2,980

Medical Tax Credits

 

 

 

Federal (16%)

477

477

477

Provincial (6.05%)

194

194

194

Tax Credit

671

671

671

Net After Tax Cost

4,080

4,080

4,080

 

 

 

 

THE MCGILL PHSP METHOD

 

Taxable Income

$60,000

$100,000

$120,000

Medical Expenses

4,750

4,750

4,750

 

 

 

1,770

1,770

Eligible Medical Expenses

4,750

4,750

4,750

Tax at marginal rate

39% 

44% 

46% 

 

 

 

 

 

 

 

 

Medical Tax Credit

1,853

2,090

2,185

Net After Tax Cost

2,898

2,060

2,565

McGill PHSP Advantage

1,182 

1,420 

1,515 

FURTHER READING

Check out this interesting article by CBC News | Business: PHSP: The Best Health Plan You've Never Heard of