Finance Minister Paul Martin has given self-employed Canadians an
Early Christmas present. As of January 1, 1998, premiums paid for
health and dental insurance will be deductible from business
income. Premiums paid to a Private Health Services Plan (PHSP) are
deductible as long as the taxpayer’s primary source of income is
from self-employment, and income from other sources does not exceed
The maximum deduction from business income for the self-employed
individual is $1,500, with and additional $1,500 maximum deduction
for his or her spouse and $750 for each dependent child.
The previous system limited the tax credit to 26% based on the
excess premium that was over 3 percent of net income. In other
words, the higher you net income, the lower your tax savings.
The new arrangement allows the self-employed to deduct the full
amount of the premium paid in 1998 from taxable income. This saves
tax at the marginal tax rate, and can mean a savings of 26% to 52%,
depending on the tax bracket.
Many people with Registered Retirement Savings Plans (RRSPs)
hear of examples such as, Mary is in a 40% tax bracket, if she
invests $1000 in a RRSP her tax deferred savings will be $400 ($1000
x 40%). Under the new system the same tax advantage would apply to
Mary’s Private Health Services Premiums. If her premium is $1,000
annually and if she is in the same 40% marginal tax bracket, her
savings would be the same.
Take for example ‘John’, a self-employed computer programmer with an
annual income of $50,000. His marginal tax bracket is about 40% and
his net income is $35,000. He is married, has two children, and
pays $140/month for his PHSP.
Under the old system John’s calculations would be as follows:
$35,000 (Net income) x
$1,680 (annual premium
paid) - $1,050 = $630 $630 (excess premium paid over 3%) x 26% (tax
savings) = $163
And under the new
Premium paid is
$1,680($140 x 12)
Marginal tax bracket is
Tax savings is $672
($1,680 x 40%)
John will realize
additional savings of $508.20 ($672 - $163.80) under the new system.
The above examples are for illustrative
Bear in mind that tax rates will vary depending on income; you
should consult your tax advisor for further information.
illustrations, it is apparent that the new tax changes can benefit
the average self-employed Canadian. It is also apparent that the
government has realized that a great deal of Canada’s future depends
on self-employed individuals.
Insurance Consultants offer a variety of Private Health Care Plans
to suit individuals and families of all sizes.
1206 - 90 Burnhamthorpe
(905) 276-5505 1
Fax (905) 270-1177
Call or fax us for a personalized quotation