Originally published on June 1, 2006


Business owners are implementing in-house private health services plans, or PHSPs, to retain and reward their employees and to get more bang for their buck when it comes to their own medical expenses.

An in-house or self-administered PHSP is an insurance plan that does not involve the use of an insurance company or trustee, typically on a cost-plus basis.  If an employer enters into a PHSP for an employee, the expenses can be deducted by the employer and are not taxable to the employee.

Under a PHSP, an annual spending limit is set, but that amount, if unspent, may be carried forward into a  subsequent year if provided for in the contract.

A PHSP should include:

A written contract between the business and its employees that defines and obligates the business to meet specifically defined health needs of its employees.

An arrangement by which existing and future employees will be identified and contacted as being eligible for automatic enrollment.

A means of monitoring claim activity in a ledger that shows the management of annual limits and carry-forward provisions if available.

No claims should pre-date the start of the contract.  The contract, because it is a contract of insurance, cannot be back-dated.



The Canada Revenue Agency has stated that a sole proprietor with no full-time employees will not qualify as a PHSP, but could qualify if the plan provides coverage for a proprietor and one or more full-time employees even if they deal at non-arm's length with the employer. In other  words, the employee could be a relative. However, the employee must receive coverage as an employee and not because of the relationship with the proprietor-employer.

In table one, a business owner in a proprietorship employs his wife and son.  Together, they incur $5,750 in medical expenses, largely due to the son's braces at a cost of $4,500.

Without the PHSP, the business owner would receive a tax refund of $1,158. With a PHSP he would receive a tax refund of $2,139.  By participating in a PHSP, the business owner puts an additional $981 in his wallet.

In table two, the same business owner, wife and son incur only $1,250 in medical expenses. In these situations of lower medical expense claims, the in-house PHSP results in an additional tax refund of $437.  Without the PHSP the business owner secures no benefit because his family's medical expenses do not exceed his three percent net income limitation.

No matter what medical expenses you incur,  you should consider an in-house PHSP.   Larger companies have taken advantage of this deduction for years.  If you are not using it, why not?



Allyn Tastad, chartered professional accountant, is a partner in the accounting firm of Hounjet Tastad Harpham in Saskatoon at 306-653-5100, e-mail at or website All data and information provided is for informational purposes only. Readers are cautioned that laws and regulations are subject to change. Consult your accountant for current professional advice tailored to your situation.