Incorporated Employer
Q: Is the plan available to shareholders?
Yes, but if you make the plan available only to shareholders, CRA may argue that the plan is not a benefit received by virtue of employment, but rather an appropriation by a shareholder. If there is any doubt as to whether benefits are received as an employee or a shareholder, then steps can be taken to demonstrate that a person receives the benefit in his or her capacity as an employee. Steps include having other employees who are not shareholders receive benefits under the plan.
Q: What if all the employees are also shareholders and we have no other employees. Do we qualify?
Yes, if the plan is made available to all employees who are also shareholders.
Q: Is there a dollar limit that the company may reimburse the employees through Promedent PHSP?
There is no statutory limit for the amount of medical expenses that can be reimbursed but any expenses must be reasonable in order to be deductible.
Q: Do I have to provide the same amount of benefit to all my employees?
No, you can set different claim limits for your employees. Usually, the limits are set based on contribution and length of service to the business. This limit can be changed yearly.
Q: How long does the employer hold employee benefit information?
This is regulated under the Employment Standards Act of each province, but for most provinces employment records must be retained for 7 years after the employment ends.
Unincorporated Employer
Q: I operate my business as a sole proprietorship. Can I deduct premiums I pay to a PHSP for my family and me?
Thorsteinssons, our Tax Legal Advisor, has informed us that it was the intention in the 1998 Federal Budget that a sole proprietor that has at least one qualified employee will be able to deduct amounts paid through a PHSP, but there are technical deficiencies with the legislation as enacted under the Income Tax Act in this regard, and accordingly the Canada Revenue Agencies ("CRA") may question whether a deduction is available to a sole proprietor in respect of amounts paid under Promedent PHSP. From their discussions with the CRA, they feel that if Promedent would request an opinion of the CRA at this time that their ruling would be favourable.
Q: What are the conditions for deducting health and dental expenses through a PHSP with respect to my family and me?
- 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 (defined term), or your income from sources other than self-employment (defined term) 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 any member of your household.
- In addition, 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 private health services plans (ie: Promedent Administration Inc.);
- a tax-exempt trade union of which you or the majority of your employees are members; or
- a tax-exempt business organization or a tax-exempt professional organization of which you are a member.
Q: How do I calculate the maximum deduction for PHSP premiums?
The maximum deduction allowable for premiums paid or payable to PHSP depends on whether the business has qualified employees (generally referring to full time arm's length employee who has completed 3 months or more services), and whether any of them are insured. For the detailed calculation of the maximum deduction under various scenarios, please refer to the section "Sample Calculations".
- General claim limitations for a sole proprietor
The annual limit is, a maximum of $1,500 for the sole proprietor, $1,500 for the spouse and household members 18 years of age or older at the start of the period when they were insured, and $750 for household members under the age of 18 at the start of the period. Note that the limit is further limited by the number of days during the year the members are insured.
- If the business had "qualified employees" during the year
If you had qualified employee throughout the year, your claim for PHSP premiums is limited in a different way depending on the portion of insured persons who are qualified employees and the premium cost you paid for each of the qualified employees. In general, the amount of premiums you may deduct for yourself and your family is restricted by the premium cost you paid for your least favoured employee.
- Can a sole proprietor use a PHSP if no qualified employees are included?
No. The maximum limit you may set for yourself may not be more than for your least favoured employee. The maximum limit for a non-insured but qualified employee is nil and therefore the maximum limit for you is also nil.
Q: I do not have any full-time employee. Can I register with Promedent and deduct the premiums paid for my and my family's medical expenses as PHSP premiums?
No. According to the interpretation by the CRA, it is not a PHSP if the contract is between the administrator and the sole proprietor with no qualified employee.
Q: How long does the employer hold employee benefit information?
This is regulated under the Employment Standards Act of each province, but for most provinces employment records must be retained for 7 years after the employment ends.
Q: How long does the employer hold employees' submitted claims and receipts?
For personal income tax purposes, all receipts must be held for 3 years from the date the CRA issues their Notice of Assessment. All businesses are required under the Income Tax Act to retain their books and records for 7 years.
