Private Health Services Plan

Income Tax Deduction Comparison

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In the distant past, all Canadians were able to write off all of their qualifying health and dental expenses against income. Over the years, amendments to our tax system changed this so that instead of getting dollar for dollar tax deductions, minimal tax credits were earned if certain limits were exceeded. Many Canadians still think that the health and dental receipts they submit with their income tax form each year are helping to substantially reduce their taxes. Not so.

Currently, Canadian tax payers submit their personal and family health and dental expenses to the tax department when they file their annual tax return sometime on or before April 30th of each year. If the tax payer is married, then all of the combined annual health and dental expenses are usually submitted on the tax return of the spouse with the least income. The reason for this is that personal and family health and dental expenses have to exceed 3% of the net income of the person submitting them or $2,024.00 [as of year 2010], whichever is the least. Only the amount of expense that exceeds these limits will qualify for a combined 25% Federal and Provincial tax credit.

In recent years, allowances have been made for self employed people in the form of Private Health Services Plans. Putting a plan like this in place allows a self-employed person to write off 100% of personal and family health and dental expenses against business income. The difference between a self-employed person not having a Private Health Services Plan and having one is as follows:

This example is based on an individual earning a net income of $50,000 a year with total personal and family health and dental expenses of $2,000

Without Private Health Services Plan

 

With Private Health Services Plan

Health/Dental Receipts

$2,000

 

Health/Dental Receipts

$2,000

Deduct 3% of $50,000 Income

$1,500

 

Add Admin fee 10% of $2,000*

$200

Qualifying Expenses

$500

 

Qualifying Expenses

$2,200

Total Tax Credit 25% of $500*

$125

 

Total Tax Deduction

$2,200

*Based on combined Federal & Provincial rate of 25%

 

* Presumes that one-time set-up fee has been paid

If you have the choice between a tax credit and a full 100% write-off, which would you prefer?


Beaton Insurance Services
15310 Pacific Avenue
White Rock, British Columbia, Canada V4B 1P9
Tel: (604) 535-2404
Toll Free Canada: 1-800-667-8818
Web site: http://www.aftertaxes.ca
E-mail: john@aftertaxes.ca

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