What Is a Private Health Services Plan (PHSP)?
A Private Health Services Plan — also called a Health Spending Account (HSA) or Cost-Plus plan — is a CRA-approved mechanism that allows Canadian businesses to reimburse employees and owner-employees for eligible medical expenses on a tax-free basis.
For incorporated business owners in Alberta, this means your corporation can pay for your family's dental cleanings, prescription glasses, physio visits, and hundreds of other health expenses — and deduct every dollar as a legitimate business cost on your T2 corporate return.
Unlike traditional group insurance, a PHSP has no monthly premiums for coverage you may not use. You only spend money on actual medical costs, plus a small administration fee to the plan administrator. The CRA has recognized this structure since the Income Tax Act defined PHSPs in section 248(1).
PHSP vs. Personal Medical Expenses
Personal After-Tax Payment
You pay $1,000 in dental bills from personal income. After tax, that cost you $1,000 + the income tax you paid to earn it.
PHSP Through Your Corporation
Your corporation reimburses your $1,000 dental bill. The $1,000 is a deductible business expense. You receive the reimbursement tax-free.
Result: Significant after-tax savings for incorporated Alberta business owners.
Who Qualifies for a PHSP in Alberta?
PHSPs are available to a wide range of Alberta business structures, though the tax benefits vary depending on how your business is organized.
Incorporated Business Owners
The best PHSP candidates. Alberta corporations can deduct 100% of eligible medical expenses reimbursed to owner-employees with no annual cap.
Professional Corporations
Lawyers, accountants, dentists, physicians, and other professionals incorporated in Alberta benefit from the same full deductibility.
Self-Employed / Sole Proprietors
You can access a PHSP, but CRA-prescribed limits apply. Annual coverage is capped based on employment income. Incorporation is more advantageous.
Small Businesses with Employees
PHSPs can extend to all employees at defined benefit levels. This makes a PHSP a cost-controlled alternative to group benefits for teams of 2–10.
Contractors & Freelancers
Incorporated contractors or consultants — in tech, trades, real estate, or any field — who pay for health expenses personally are strong PHSP candidates.
Holding Companies
Alberta holding companies with operational activity can establish PHSPs. Structuring considerations apply — we'll confirm eligibility in your free consultation.
What Health & Dental Expenses Are Eligible?
A PHSP covers any expense that qualifies as a medical expense under the CRA's Medical Expense Tax Credit (METC) guidelines — that's over 100 categories of eligible costs. Common eligible expenses include:
Note: CRA's eligible expense list is comprehensive. Cosmetic procedures without medical necessity and gym memberships are generally not eligible under a PHSP. A Personal Spending Account (PSA) can cover wellness expenses that fall outside CRA's PHSP rules — ask us about combining both for maximum benefit.
How Is a PHSP Tax-Deductible?
Under the Income Tax Act, a PHSP is recognized as a non-taxable employee benefit when properly structured through a third-party administrator. This is not a gray area — it's a well-established CRA program.
When your Alberta corporation establishes a PHSP and reimburses eligible medical expenses for owner-employees, those reimbursements are:
- Deductible as a business expense on your T2 corporate tax return
- Received by you (the employee) tax-free — no T4 slip required
- Not subject to GST/HST in most cases
- Not capped for incorporated businesses (no annual maximum)
The result: dental, vision, physio, and other health costs that you'd normally pay from personal after-tax income become fully deductible business expenses.
CRA Reference
PHSPs are governed by section 248(1) of the Income Tax Act and IT-339R2 (Interpretation Bulletin). CRA also published guidelines on what constitutes a valid PHSP for deductibility purposes.
Example: Alberta Corp with $3,000/yr in Medical Bills
*Illustrative example only. Actual tax benefit depends on your corporate tax rate and situation. Speak with your accountant.
PHSP vs. Group Benefits — When PHSP Wins
For Alberta small businesses and incorporated professionals, the comparison almost always favours a PHSP. Here's why:
| Feature | PHSP / HSA | Group Benefits |
|---|---|---|
| Monthly premiums | None — pay only actual expenses | Fixed, regardless of usage |
| Annual maximum | None for corporations | Defined per category (e.g., $1,500 dental) |
| Eligible expenses | All CRA-approved medical expenses | Carrier's approved list (often narrower) |
| Minimum team size | 1 person (owner only) | Usually 2–3 minimum |
| Tax deductibility | 100% for corporations | Employer premiums are deductible |
| Portability | You control the plan | Tied to carrier contract |
| Admin complexity | Low — submit receipts | Moderate — annual renewal, premium adjustments |
| Best for | 1–5 person Alberta businesses | 5+ employees with diverse needs |
Frank Cover can model both options side-by-side for your Alberta business — no obligation.
How Much Does a PHSP Cost in Alberta?
Unlike group insurance, a PHSP has no fixed monthly premiums. Your costs are straightforward:
Eligible Medical Expenses
What you spend
You only reimburse what you actually incur. If your family has a low-expense year, your PHSP cost is low.
Administration Fee
Typically 8–15%
The third-party administrator charges a percentage of reimbursements processed. This fee is also deductible by your corporation.
Setup Cost
Often $0
Many PHSP administrators charge no setup fee. Frank Cover helps you find the right provider for your situation at no cost to you.
Practical example: If your Alberta corporation reimburses $5,000 in medical expenses annually through a PHSP with a 10% admin fee, your total cost is $5,500 — all deductible. Compare this to paying $5,000 from your own pocket (after personal income tax), where the true cost is significantly higher depending on your marginal tax rate.
How to Set Up a PHSP Through Frank Cover
We handle the heavy lifting. You'll be set up with a CRA-compliant PHSP in days, not weeks.
Assessment
We review your business structure (incorporated vs. sole proprietor), your typical medical expenses, and your family situation to determine the optimal PHSP setup.
Plan Setup
We set up your PHSP with a CRA-compliant third-party administrator. Your corporation enters into a formal plan agreement — the key requirement for CRA recognition.
Submit & Reimburse
You pay eligible medical expenses personally, then submit receipts through your plan. Your corporation reimburses you tax-free. The reimbursement is deducted on your T2.
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PHSP Alberta — Frequently Asked Questions
Everything you need to know about setting up a PHSP in Alberta.
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