A PHSP is NOT taxable to employer or employee!
In 1988 Canada Revenue Agency (CRA) announced that a small business is allowed to deduct 100% of their eligible family medical expenses, if administered under a Private Health Services Plan (PHSP) via a third party arms-length administrator.
CRA Interpretation
Section 248(1) of the Income Tax Act defines a Private Health Services Plan (PHSP) as:
(a) a contract of insurance in respect of hospital expenses, medical expenses or any combination of such expenses, or
(b) a medical care insurance plan or hospital care insurance plan or any combination of such plans,
except any such contract or plan established by or pursuant to
(c) a law of a province that establishes a health care insurance plan as defined in section 2 of the Canada Health Act, or
(d) an Act of Parliament or a regulation made thereunder that authorizes the provision of a medical care insurance plan or hospital care insurance plan for employees of Canada and their dependants and for dependants of members of the Royal Canadian Mounted Police and the regular force where such employees or members were appointed in Canada and are serving outside Canada; (régime privé d’assurance-maladie)
Example
Below is a typical example of a $2,000 eligible medical expense (originating in the province of Alberta) and the easy 4-step Intendo PHSP Pay-to-Reimburse process.
In this example, Intendo Benefits Administration Inc. acts as the third party arms-length Plan Administrator, managing the plan according to CRA approved guidelines on behalf of the employer (Plan Owner), resulting in reimbursements paid out being 100% tax-free to registered employees (Plan Members).
Note: In lieu of a monthly premium or any annual membership/renewal fee, Intendo Benefits Administration Inc. charges only a 4% administration fee on claims of $2,000 plus, or 5% on claims of less than $2,000.
The easy 4-step Pay-to-Reimburse process works as follows:
Step 1 – Pay: Employee (Plan Member) receives an eligible product, procedure or service to the value of $2,000 from a medical practitioner (Provider), and pays for the medical expense incurred.
Step 2 – Claim: Employee (Plan Member) completes the Intendo Benefits Administration Inc. (Plan Administrator) claim form, attaches receipt(s), and submits to employer (Plan Owner) for approval and processing, if required. (Please note that only scanned copies of receipts are required, while originals should be retained for Plan Member records.)
Step 3 – Submit: Employer (Plan Owner) submits the claim with receipt(s) and a business payment for $2,084 to Intendo Benefits Administration Inc. (Plan Administrator) to cover the claim of $2,000 plus the 4% administration fee of $80 and taxes of $4 (5% GST on the $80 administration fee only).
Step 4 – Reimburse: Intendo Benefits Administration Inc. (Plan Administrator) adjudicates the claim and reimburses the employee (Plan Member) with a personal payment of $2,000 via direct bank deposit for the expense incurred.
Note: The full reimbursement amount of $2,000 is completely tax-free to the employee (Plan Member), while the total amount of $2,084 received from the employer (Plan Owner) also qualifies as a fully deductible business expense, as supported by a tax receipt issued by Intendo Benefits Administration Inc. (Plan Administrator) to the employer (Plan Owner).
Benefits
By comparison, assuming a marginal tax rate of 40% in the above example, an employee would have to earn about $3,334 before tax in order to pay for the same $2,000 medical expense out of pocket after tax.
Based on our example, this equates to a saving of $1,334 for the same employee as a Plan Member of a PHSP.
With the business also qualifying for a fully deductible business expense, the tax savings realized at both the employee (Plan Member) and employer (Plan Owner) level are very compelling for any eligible business in Canada. Therefore, a PHSP should form an essential part of your tax planning strategy, especially when you take into account that:
- You only pay a one-time registration fee of $75 for registering a PHSP and can add new or update existing employees (Plan Members) via the claim form – No annual membership or renewal fees are charged
- You only pay a minimal administration fee when you claim (Only 4% for claims of $2,000 plus, or 5% for claims less than $2,000, subject to a minimum fee of $5 per claim) – No monthly premiums, ongoing fees or penalties for not using the plan
- It provides immediate coverage that is also more comprehensive and hassle-free than traditional health benefits plans – No medical examination is required to qualify for acceptance, no 3-24 month waiting periods before you are allowed to claim for certain eligible medical procedures or types of care, and no partial/percentage based coverage only
Next Step
If you are an eligible business without a Private Health Services Plan (PHSP), or want to switch to the most affordable PHSP available, the next step is to register an Intendo Benefits Administration PHSP today so you and your employees can start realizing the many benefits immediately.