Important Information for Sole Proprietors with Employees

For Unincorporated Companies:

For the purposes of this claim, the following definitions apply:

Arm's length employees are, generally, employees who are not related to you and not carrying on your business with you, for example, as your partners. See "Non-arm's length transaction" for it's definition.
Qualified employees are arm's length, full-time employees who have three months service since they last became employed with a business carried on by you, a business in which you are a majority interest partner, or a business carried on by a corporation affiliated with you. Temporary or seasonal workers are not qualified employees.
Insurable persons are people to whom coverage is extended and who are either:

qualified employees;
people who would be qualified employees if they had worked for you for three months; or
people carrying on your business (including yourself and your partners).

If you had employees throughout the year, please NOTE the following:

If you had at least one qualified employee throughout all of the year, and at least 50% of the insurable persons in your business were qualified employees, your claim for PHSP premiums is limited in a different way. Your limit is based on the lowest cost of equivalent coverage for each of your qualified employees. See the definition of qualified employees.

Use the following steps to calculate your maximum allowable claim for the PHSP premiums paid or payable for yourself, your spouse or common-law partner, and your household members.

For each of your qualified employees, do the following calculation:

X × Y = Z, where:

X	equals the amount you would pay to provide yourself, your spouse or common-law partner, and your household members with coverage equivalent to that provided to a particular employee and his or her spouse or common-law partner and household members;
Y	equals the percentage of the premium you pay for that particular employee; and
Z	equals your limit based on that particular employee.

Example 1
You have one qualified employee. To provide yourself with coverage equivalent to his, you pay a premium of $1,800. You pay 60% of your employee's premium. Your deduction limit for yourself is $1,080, calculated as follows:

$1,800 (amount X) × 60% (amount Y) = $1,080 (amount Z).

The maximum you can claim is $1,080 if you had only one qualified employee.

If you had more than one qualified employee, you have to do the X × Y = Z calculation for each employee. Your limit is then the least amount you calculate for each and every employee.

Example 2
You have three qualified employees, Jack, Jill and Sue. The following table shows how much you would pay for coverage equivalent to each of theirs and the percentage of each employee's premium that you pay.

Name of employee	Cost of equivalent coverage for yourself (X)	% of the employee's premium you pay (Y)
Jack	$1,500	20%
Jill	$1,800	50%
Sue	$1,400	40%

You have to do three calculations, X × Y = Z:

For Jack:	$1,500 × 20%	=	$300
For Jill:	$1,800 × 50%	=	$900
For Sue:	$1,400 × 40%	=	$560

Your limit is $300, the least of the amounts calculated for the three employees.

Note
If you have a qualified employee with no coverage, you cannot claim your PHSP premiums as a deduction from self-employment income. However, you may be able to claim them as medical expenses.

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