Canada: Is A Private Health Services Plan Right For My Professional Corporation?

Last Updated: February 17 2017
Article by Ryan Cairns

One of the most common and important benefits for employees working in any business is medical insurance and medical expense coverage. Unexpected ailments, injuries or health related services (dental, orthodontic, physiotherapy, massage therapy, etc.) can create significant financial burdens on individual employees if their employers do not offer sufficient medical and dental insurance plans. In addition, many employers struggle with the cost of providing extensive medical plans and they may pass the additional costs on to their employees indirectly through reduced wages or directly via employee optional coverage enhancements. Recognizing these issues, our tax laws permit certain tax-advantageous insurance arrangements and plans as a means of providing the benefit of extensive health coverage to employees, while at the same time, minimizing the costs to the employee and the business. These insurance arrangements and plans are commonly referred to as Private Health Services Plans (PHSPs).

What is a PHSP?

A PHSP is a vehicle by which a corporation can cover the medical expenses of its employees, and all blood-related members of their households, in a tax- efficient manner. If structured correctly, any expenses incurred by the corporation in relation to a PHSP are tax deductible, and the associated benefits received by the employees are tax-free.

How does a PHSP work?

A PHSP must contain the element of insurance – insurance through a third party or self-insurance. While there are different methods of administering PHSPs; the two most common are the "cost-plus" structure and the use of a Health and Welfare Trust.

"Cost-plus" Plans

"Cost-plus" plans are the most common and straightforward means of implementing a PHSP. Under the "cost-plus" structure, employees will initially pay for their medical bills, the employee will then make a claim with the insurance company contracted by the employer and be reimbursed. The employer promises to reimburse the insurer for the actual amount of all claims, plus an administration fee.

Health and Welfare Trust (HWT)

In contrast to the "cost-plus" plan structure, an HWT mandates that the employer makes fixed, regular (e.g., monthly, quarterly, etc.) contributions to a trust fund. Where the HWT is an insured plan, the employer contributions are used to pay for the necessary health insurance premiums. Where the HWT is a self-insured plan, the employer's contributions create a pool of funds from which employees can seek reimbursements from specific, eligible claims.

What are the benefits and risks associated with a PHSP from a tax perspective?

The tax benefits associated with a PHSP can be significant. The corporation is allowed to deduct its contributions to the plan and/or expense reimbursements to its employees from its taxable income, thereby reducing its taxes. The employee, on the other hand, receives the monetary benefit of having his or her medical expenses reimbursed, and receives this benefit tax-free. Therefore, tax savings are created for both the employee and the employer.

However, if the plan does not meet the Canada Revenue Agency's ("CRA") qualifications for a PHSP, the corporation will be denied the deduction of the related expenses, and the employee will be deemed to have received a taxable benefit to the extent of any expense reimbursements received during the year.

It should be noted that payments and reimbursements to employees may be subject to Retail Sales Tax (8% in Ontario) and Insurance Premium Tax (2% in Ontario).

What are the restrictions on what qualifies as a PHSP?

When determining whether or not a corporation's health benefit plan qualifies for tax treatment as a PHSP, the CRA will consider several factors such as:

  • The corporation should be obligated to cover the employees' eligible expenses under the plan, as dictated by their employment contract;
  • There should be a pre-determined maximum benefit that employees or groups of employees are eligible to claim within a 12-month period;
  • The HWT should not incur perpetual surpluses (temporary surpluses are permitted); and
  • The HWT trustees (i.e. those who administer the HWT) should act independently of the employer.

While none are deemed essential qualifications of a PHSP on their own, if several of the considerations above are not met, the plan will unlikely qualify as a PHSP.

Can an individual who is both a shareholder and an employee of a professional corporation participate in a PHSP?

The underlying principal, as explained in "Technical Interpretation 2014-0521301E5" issued by the CRA, is that a PHSP qualifies for special tax treatment if it can be demonstrated that the plan is offered non-discriminatorily to all or a group of the corporation's employees. If it can be shown that shareholders are entitled to the same benefit as employees who are not shareholders, but who have similar roles and responsibilities within the corporation, then the tax benefits stemming from the use of a PHSP would be available.

What about in the case of a sole shareholder who is the sole employee of the professional corporation?

In the Technical Interpretation mentioned above, the CRA does allow for the qualification of a PHSP for an incorporated individual if it can be demonstrated "that employees, who are not shareholders, with similar duties and responsibilities to another corporation of a similar size receive similar benefits under a similar plan."

In practice, finding a sufficiently similar arrangement to use as a comparative becomes quite difficult. It is the CRA's position, as well as Canadian tax jurisprudence, that if the individual professional is the sole employee of the professional corporation, the individual would be receiving the PHSP benefits by virtue of being a shareholder, not as an employee. In that situation, any benefits received from the PHSP would be considered a taxable benefit to the professional.

I think a PHSP is right for my professional corporation – what's next?

To ensure that a PHSP mitigates the risk of a successful challenge from the CRA, the corporation's obligation to reimburse qualifying expenses to its employees, up to a predetermined maximum benefit, must be written into all of the corporation's employment agreements. In addition, a resolution should be passed by the corporation's board of directors outlining the details of the PHSP. Finally, if a HWT is to be used, a separate bank account should be opened in the name of the trust and a Trust Deed or Trust Agreement be drafted and put in place.

A PHSP is a tax effective means of funding the medical, dental and related health care expenses of your employees. It is also a great way to improve your professional corporation's employee compensation plan, which will help to attract and keep the best available talent.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Ryan Cairns
In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.