Sole Proprietors and Unincorporated Businesses

In February 1998 while delivering the federal budget, the Honourable Paul Martin, P.C., M.P., and Finance Minister said "The number of self-employed Canadians is growing daily. Many operate through unincorporated businesses. However, unlike those businesses that are incorporated, they cannot deduct premiums they pay for their supplemental health and dental plans. This is unfair. Starting this year, self-employed Canadians will be able to deduct these premiums from their business income."

The Private Health Services Plan (PHSP) was therefore designed to fill the need of the sole proprietor and unincorporated business owner. In order to qualify under a PHSP, Revenue Canada has implemented rules to govern its use and they are as follows:

Note: sole proprietors, partnerships, independent contractor and any unincorporated businesses apply below

1. Element of Insurance:

Canada Revenue Agency (CRA) requires that there be an element of insurance in order for the plan to exist. Canada Insurance Plan therefore requires that Emergency In Province and Out of Province Insurance (Stop Loss/Travel Medical) must be purchased. Emergency In Province and Out of Province (stop/loss travel medical) .

2. Income Requirements:

  • Your net income from self-employment (excluding losses and PHSP Deductions) for the current year is more than 50% of your total income.
  • Your income from sources other than self-employment is $10,000 or less.



3. Benefit Maximums

    i) Sole Proprietor without employees



For a family of 4 people which consisted of husband and wife and two minor children, the overall maximum that can be spent each year will be $4500 (2 adults at $1500 and 2 children at $750)  Any member of the family can use the full amount

The above amounts are based on the program being in place for the entire year. If the program is structured 6 months into the year, then the maximums would be 50% (#days plan in place/365 days) of the above ceilings.

    ii) Sole Proprietor with Arms Length* Employee

If the unincorporated business has eligible arm’s length employees, CRA sets the owner maximum in a differing manner. The owner’s eligible amount in this case would be the lowest cost-equivalent coverage provided to their least-favoured arm’s length employee. For example, if the owner provides only $500 to an employee, then their personal deduction ability will also be limited to $500 per annum.

* arms length employee is one that is unrelated to the sole proprietor


$1,500 for sole proprietor and their spouse (or common law partner)
$1,500 for each member of the sole proprietor’s household that attained the age of 18 before the beginning of the period
$750 for each member of the of the sole proprietor’s household that has not attained the age of 18 before the beginning of the period
Financial dependence is the key criteria when determining whether or not a person is a “member of the household”.