PERSONAL TAX TRAINING

PRIVATE HEALTH SERVICES PLAN PREMIUMS

A Private Health Services Plan (PHSP) is an arrangement that provides coverage for medical and hospital expenses for employees and their families. Understanding the tax implications of PHSP premiums is essential for both employers and employees.

Employer Contributions

When an employer contributes to a PHSP on behalf of employees, these contributions are generally not considered a taxable benefit to the employees. This means that employees do not include the value of these contributions in their income for tax purposes. :contentReference[oaicite:0]{index=0}

Employee-Paid Premiums

Premiums paid directly by employees to a PHSP can be claimed as qualifying medical expenses on their income tax returns. To facilitate this, employers may report the total amount of employee-paid premiums in the "Other information" section of the T4 slip using code 85. While the use of code 85 is optional, not including it may result in the CRA requesting supporting documentation from the employee. :contentReference[oaicite:1]{index=1}

Reporting for Former or Retired Employees

For former or retired employees, any premiums they pay towards a PHSP should be reported on a T4A slip. The amount should be entered under code 135, labeled as "Recipient-paid premiums for private health services plans," in the "Other information" area at the bottom of the T4A slip. :contentReference[oaicite:2]{index=2}

Payroll Deductions

Employers are not required to withhold Canada Pension Plan (CPP) contributions, Employment Insurance (EI) premiums, or income tax from the benefits provided to employees under a PHSP. :contentReference[oaicite:3]{index=3}

Criteria for a Plan to Qualify as a PHSP

As of January 1, 2015, the CRA considers a plan to be a PHSP if it meets the following conditions: :contentReference[oaicite:4]{index=4}

• All expenses covered under the plan are medical and hospital expenses eligible for the Medical Expense Tax Credit (METC).
• All or substantially all (generally 90% or more) of the premiums paid relate to medical expenses that qualify for the METC.
• The plan operates in the nature of insurance, providing coverage only to the employee, their spouse or common-law partner, or any member of the employee’s household connected by blood relationship, marriage, or adoption.