Private Health Service Plans
While corporate-sponsored health plans provide employees protection from the expense of drugs, dental, vision and other healthcare services, they also offer a tax-efficient form of compensation. Private Health Service Plans (PHSPs), are a deductible expense to the corporation and a non-taxable benefit to employees. Meaning, employees can arrange, through a PHSP, to have medical bills paid on their behalf, without attracting income tax.
Qube offers a cost-effective and straightforward PHSP kit for small businesses. We can help you set up a tax-compliant PHSP, where a one-time, flat fee gets you a comprehensive Plan Kit with all the necessary training needed to self-administer a corporate health plan.
Before 1998, Private Canadian healthcare was primarily managed by insurance companies. Their “health plan” simplified the arrangement for employers by offering healthcare services and products deemed appropriate for working, middle class Canadian, such as basic dental and drug coverage. For a premium, insurance companies covered all the eligible claims in the plan, providing the employer cost certainty and simplicity.
In the 1980s, however, following a high inflation cycle, sentiment shifted. Many employers found the escalation of cost and insurance fees unpalatable. Responding to their frustration, Canada Revenue Agency worked to develop an alternative for employers that would allow for creative health planning. With two tax rulings, ATR23 and IT-339, employers now have the option to use an insurance company, a third-party administrator, a trustee, or manage their own plan internally, if it follows insurance principles.
Why Choose Corporate Sponsored Healthcare?
Through Employer Sponsored Healthcare Plans, employees can access various healthcare products and services, including dental work, pharmaceuticals, massage, chiropractic care, acupuncture, physiotherapy and eyeglasses. In other words, employers can offer everything allowed by Canada Revenue Agency that is simple enough to self-administer without the premiums or fees charged by insurance companies or third-party administrators.
Further, employees are not taxed for the healthcare products they receive, an important point considering tax rates can reach 50% in many Canadian Provinces.
For example, a healthcare expense of $2,000 would cost a company, who does not have health coverage, $4,000 when considering taxes.
No Healthcare Plan:
With a Private Health Service Plan:
Canada Revenue Agency views benefits generally as derived by the individual’s employment (not shareholding); and, therefore, should be tax-exempt, as it is to all other employees. Owner-managers must actively engage as an employee of the company and the PHSP benefits received must be “reasonable.”Insurance principles and proper documentation are a must.
For a more technical discussion, check out our whitepaper, “The Small Business Health Plan.”