When Do They Qualify as a Medical Expense?

Many Canadians pay for private health and dental insurance — especially self-employed individuals, employees without full coverage, and business owners. But not everyone knows when those premiums qualify as an eligible medical expense for tax purposes.

At Toro Accounting, we regularly review health insurance plans to ensure they meet CRA requirements before claiming them on a personal or corporate tax return.

Here’s what you need to know.

🔹 What Is a Private Health Insurance Plan?

A private health insurance plan is coverage purchased from an insurer (or structured through a business) that provides reimbursement for eligible medical expenses.

Examples include:

✔ Extended health coverage (prescription drugs, paramedical services)
✔ Dental insurance
✔ Vision coverage
✔ Certain travel medical coverage
✔ Private Health Services Plans (PHSP)

The eligibility rules are governed by the Canada Revenue Agency (CRA).

🔹 When Do Premiums Qualify as a Medical Expense?

Premiums paid to a Private Health Services Plan (PHSP) may qualify for the Medical Expense Tax Credit (METC) if:

✔ The plan qualifies as a PHSP under CRA rules
✔ The coverage is limited to eligible medical expenses
✔ The premiums were paid and not reimbursed
✔ The plan is structured as insurance (risk pooling + reimbursement)

If eligible, the premiums can be included as part of your medical expenses on your T1 return.

🔹 How Is It Handled on a Personal Tax Return?

If you personally pay premiums to an eligible PHSP:

✔ The premiums are included in your total medical expenses
✔ They are subject to the medical expense threshold (3% of net income or the annual CRA maximum, whichever is less)
✔ The federal credit is generally 15%, plus the applicable provincial credit

The credit is non-refundable — meaning it reduces taxes payable but does not generate a refund by itself.

🔹 What If the Plan Is Partially Paid by the Employer?

This is very common — and the treatment depends on who actually paid the premium.

Scenario 1️⃣: Employer Pays 100%

If your employer pays the full premium:

✔ It is generally not taxable to you (if it qualifies as a PHSP)
✔ You cannot claim those premiums as a medical expense
✔ Only unreimbursed out-of-pocket medical expenses can be claimed

You cannot claim something you did not personally pay.

Scenario 2️⃣: Employer Pays Part / Employee Pays Part (Payroll Deduction)

If:

• The employer pays a portion
• The employee pays a portion via payroll deduction

Then:

✔ Only the portion you paid personally can be claimed as a medical expense
✔ The employer-paid portion cannot be claimed
✔ You must verify the total amount deducted from your pay

Your T4 does not always break this out clearly — so reviewing pay stubs or the benefits summary is important.

Important Note

If the employer-paid portion is treated as a taxable benefit (rare for PHSPs but possible for certain plans), the analysis changes and professional review is recommended.

🔹 Special Rules for Self-Employed Individuals

If you are self-employed:

✔ Premiums may be deductible as a business expense
✔ You may claim them under self-employed health insurance deduction rules
✔ Income-based limits may apply

In some cases, this provides greater tax savings than claiming the medical expense tax credit.

🔹 Corporate Planning Considerations

If a corporation pays health insurance premiums for a shareholder:

✔ The corporation may deduct the premiums
✔ It may not create a taxable benefit if structured properly
✔ The plan must qualify as a PHSP

Incorrect structuring may result in shareholder benefit issues.

🔹 When Premiums Do NOT Qualify

Premiums may not qualify if:

❌ The plan includes non-medical benefits
❌ It operates like a savings account
❌ It reimburses ineligible expenses
❌ It does not meet PHSP requirements

The CRA carefully reviews PHSP arrangements, particularly for incorporated professionals.

🔹 Why Proper Structuring Matters

With proper planning, private health insurance can:

✔ Reduce personal taxes
✔ Provide corporate deductions
✔ Avoid shareholder benefit problems
✔ Maximize overall family tax efficiency

Improper handling can eliminate the tax advantage.

💼 How Toro Accounting Can Help

At Toro Accounting, we:

✔ Confirm whether your plan qualifies as a PHSP
✔ Determine whether to deduct personally or corporately
✔ Review payroll deductions properly
✔ Structure plans for incorporated professionals
✔ Reduce CRA reassessment risk

Health insurance is important — but structuring it properly makes the difference.

📞 Book a Consultation

If your health insurance is partially paid by your employer or you’re unsure how to claim it properly:

👉 Book your appointment here