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Are there any Tax Advantages to Private Health Services Plans?

helath plan

Unlike the USA a lot of Canadians didn’t give much thought to extra medical coverage, at least not until recently. Outside of dental care our basic health care needs were aptly met under our OHIP coverage.   We are now beginning to see that there are lot of benefits that we once enjoyed are no longer there. We are beginning to pay more, albeit perhaps little costs at a time but they add up.   Then there is the sum of money we pay on our tax returns that goes towards our health care costs.  Many of us don’t even realize it is there unless we complete our own tax returns.   For these reasons more people are looking at private health services plans.   These are often offered through the company the tax payer is working for.

So how are the contributions if made by the employer to a plan such as this on behalf of the employee looked at in the eyes of the CRA?   Well it is probably one area of the CRA that hasn’t been scrutinized as of late.   The last CRA bulletin issued regarding this was in 1989, which explains what the meaning of the private health services plans is.   Keep in mind however that the CRA is replacing bulletins with folios so it can be quite confusing as to whether a bulletin has been replaced.   Some bulletins on the web are marked as archived which doesn’t mean that it is no longer in effect.   It just means that it is not compliant to the current web standards.

When an employer is making a payment on behalf of an employee into a private health services plan, the amount of the payment made is not included in the employee’s income.

If the employee is paying the amount as a premium, then this is a medical expense that can be claimed under the medical expense section of your tax return, subject to some rules however.

The payments must relate to and/or the employee, the employee’s spouse or any member of the household provided there is a blood relationship, by marriage or adoption.

Some examples of these types of plans would be those that cover additional medical expenses that are not normally covered under OHIP.   For example some people want to have extended coverage for a hospital stay that would allow them to be covered for a semi-private room, or private. Or it could be dental coverage.

For the average tax payer they pretty well just put their faith into their tax returns. Meaning they don’t try to decipher what each section they are filling out really means to their tax situation.   So when it comes to claiming medical expenses many assume that they are getting a credit for the whole amount that they are paying into this allowable expense.   It doesn’t quite work that way.

The calculation regarding medical claims is based on a formula.   This takes the lowest tax rate percentage and multiplies it by the total of two calculated amounts. Sounds confusing doesn’t it?   Well it is and that is why the CRA has done the formulation for you on the tax return and you just have to do the math.    Technically though because the calculations contain other potential credits you really aren’t getting a true picture of what type of credit you are really getting.

The moral of the story is that any credit regarding your tax helps a little. What is important to remember here is if you are paying premiums for your Private Health Insurance Plan, then be sure to tell your accountant about this so he can account for it accordingly on your tax return.

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Sam Seidman, CPA, CA, LPA
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