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Are Health Insurance Premiums Tax Deductible in Canada for the Self-Employed?

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It’s that time of the year again: tax season! If you’re a self-employed individual, it’s important to know what exactly you can claim with regard to your health insurance benefits. No doubt you’ve wondered if you can claim your insurance plan on your taxes, so let’s break it all down for you.

Lines 330 and 331 of the Canadian tax return refer to the Medical Expense Tax Credit that allows individuals to be reimbursed for certain medical expenses, but it’s not immediately obvious what services or items can be claimed. The biggest question people ask is whether or not their health insurance premiums are tax deductible.

The true answer to that question is…it depends.

What is the Medical Expense Tax Credit?

The Medical Expense Tax Credit can give you some financial assistance if you have paid for medical services out of pocket. Premiums paid for private health insurance plans (hospitalization, medical and dental) are often eligible for deduction by the Canada Revenue Agency, but does that also apply to the self-employed?

Premiums paid to private health plans can be deducted from your business income, but you must be the sole proprietor of your business, and it must be your primary source of income.

To figure out which expenses count for deduction, visit the Tax Planning Guide website, which lists them along with what you cannot claim. Canada Revenue Agency’s website gives an even more detailed list.

Why is it so Confusing?

Taxes are rarely straightforward. With regard to tax claims for the self-employed, the confusion lies with multiple types of premiums. If you have several types of insurance for your business, (property and liability, life, disability etc.) as well as health insurance, it’s tough to figure out which premiums are deductible. Hiring an accountant may be appropriate.

Your health insurance plan premiums are eligible as long as the plan covers medical services that are permissible under the Medical Expense Tax Credit and your plan must qualify as eligible under the CRA’s rules.

As a self-employed individual, you are in a unique situation, as employer-paid plans are typically not eligible to be claimed. If your business has employees and you are providing them with a plan, you can claim the premiums as long as they are considered a reasonable business expense. Your employees cannot, because the premiums are not taken from their pay.

How to File and What Documents You Need

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Line 330 on your return must be filled out with all the correct information in order to qualify for reimbursement. In the event of an audit, it’s highly recommended that you retain all receipts as proof of payment.

In order to claim medical expenses, you will also need

  • Supporting documents such as receipts
  • Disability Tax Credit Certificate (Form T2201)
  • Prescriptions for the items and services indicating that they are a medical necessity

If you have a disability, you may be able to partially claim services and items related to your ailment. It’s important that you fill everything out carefully. If you aren’t sure about something, contact the CRA or your accountant.

If you are a self-employed individual you can also claim expenses for your spouse and dependent children, but there are certain limits with that as well. You can potentially claim for extended family if you are paying for their health expenses, but this is not guaranteed. Self-employed people may deduct their health insurance premiums from their income, as opposed to claiming them as a medical expense, and can offset the costs of their premiums with their return.

You should also be aware of what is not eligible. You cannot claim any fees paid to your provincial health plan. You also cannot claim a gym membership or healthy food, saying that they’re important to your health.

Claiming your health insurance as a self-employed individual will help lower the amount you may owe or it could give you a higher refund. If you are lost in the process, we recommend that you contact an accountant or a financial expert and they can steer you in the right direction.

Remember, it’s better to claim and not be reimbursed than to not claim at all and potentially miss out on a refund. Keep your receipts, your papers, and all information pertaining to your health insurance plan. If you need any documents for your insurance plan, call our office and we will help you to the best of our ability. Tax season is stressful, but it doesn’t have to be painful!

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