Non Incorporated Businesses or Professionals
ITA 20.01
PHSP Premiums
ITA 20.01(1)
Subsection of 20.01(1) of the Act provides that, in order
for the amounts to be deductible, either the individual's
total income (excluding losses) from businesses in which the
individual is actively engaged on a regular and continuous
basis must represent more than 50% of the individual's income
for the year, or the individual's income from other sources
do not exceed $10,000. To be deductible by the individual,
the amounts have to be payable under a contract between the
individual and
* a person licensed or otherwise authorized under federal
or provincial law to carry on in Canada an insurance business
or the business of offering services as trustee.
* a person (or partnership) offering to the public its services
as a PHSP administrator, or
* a tax-exempt entity that is a business or professional organization
of which the individual is a member or a trade union of which
the individual or the majority of the individual's employees
are members.
Limit
ITA 20.01(2)
Paragraph 20.01(2)(a) of the Act stipulates that no deduction
may be claimed under subsection 20.01(1) by an individual
in respect of an amount payable under a PHSP to the extent
that the amount is deducted under that subsection by another
individual or is claimed under section 118.2 (as a medical
expense) by any individual for any taxation year.
Paragraph 20.01(2)(b) provides that, where one or more persons
are employed on a full-time basis and have accumulated at
least 3 months of service in a business carried on by the
individual, a partnership of which the individual is a majority
interest partner or a corporation affiliated with the individual,
the deduction is restricted to the lowest cost of equivalent
coverage made available to any arm's length employee.
Paragraph 20.01(2)(c) provides that, where an individual
has no employees or where the employees dealing at arm's length
with the individual and to whom coverage is extended under
a PHSP represent less that 50% of the persons who carry on,
or are employed in, such a business and to whom coverage is
extended under the plan, the deduction is further restricted
by a dollar maximum, which is, on an annual basis, equal to
$1,500 for each of the individual, the individual's spouse
and members of the individual's household you are 18 years
of age or over and $750 for other members of the individual's
household.
Equivalent Coverage
ITA 20.01(3)
Subsection 20.01(3) determines when an amount payable in
respect of an individual under a PHSP does not exceed, in
relation to a particular period, the individual's cost of
coverage under the plan in respect of another person. The
calculation provided in that subsection is illustrated in
the following examples. In the examples, it is assumed that
the individual's cost of coverage is $1,700 on an annual basis.
Example 1
An individual is the sole proprietor of a business in which
the individual employs 5 arm's length full-time persons. While
the coverage and benefits under the plan made available to
the employees are identical to the coverage and benefits enjoyed
by the individual, the individual agreed to pay only 30% of
the premiums payable in respect of the employees' coverage.
In this case,the individual's deduction for his or her own
coverage is $510. i.e. 30% of $1,7000. The remainder ($1,190)
may, once paid, be included in the individual's total medical
expenses for the purposes of the medical expense tax credit
under section 118.2 of the Act.
Example 2
Same as in example 1, except that the individual now pays
90% of the employees' premiums, each employees' coverage being
restricted to $3,000 in benefits while the individual's coverage
in terms of maximum benefits is set at $5,000. For the purposes
of this example, assume that the cost of $3,000 coverage is
$1,200. In this case, the individual's deduction for his or
her own coverage is $1,080. i.e. 90% of 1,7000. Again, the
nondeductible portion ($620.00 in this example) may, once
paid, be included in the individual's total medical expenses.
Where the costs are not constant, the eligible amounts would
be calculated by reference to the actual costs.
Example 3
Same as in example 1, except that the individual agrees to
pay 100% of the employee's premiums, and the cost of equivalent
coverage and benefits for each of the employees is $700 less
than for the individual (presumably due to the better health
of the employee). In this case, the individual may deduct
the full cost of his or her own coverage.
Example 4
A partnership of 2 single doctors, of which the individual
is a member, operates a medical clinic. The partners are related
to each other and the partnership has 1 arm's length employee.
Assuming that both partners and the employee are covered to
the same extent under the plan and the partnership pays the
full amount of the premiums, the amount payable ($1,700) allocated
to the individual is, for the purpose of the deduction, restricted
to $1,500 since less that 50% of the total number of persons
to whom coverage under the plan is extended and who either
carry on the business or are full-time employees of the business
deal at arm's length with individual. For the purpose of determining
the number of persons dealing at am's length with an individual,
the individual is considered not to deal at arm's length with
him or herself.
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