What Is a PHSP (Private Health Services Plan) in Canada?

By Frontier Team•February 10, 2026•4 min read

If you run a small business in Canada, you have probably come across the term PHSP and wondered what it actually means. A PHSP, or Private Health Services Plan, is the CRA's official term for a tax-advantaged, employer-funded health benefit. In practice, Health Spending Accounts (HSAs) are the most common type of PHSP, and the two terms are used almost interchangeably. The bottom line: a PHSP lets your business reimburse health expenses with pre-tax dollars, saving everyone money.

What Is a PHSP?

A PHSP is a health benefit arrangement recognized by the Canada Revenue Agency under Section 248(1) of the Income Tax Act. In plain English, it is a way for your business to pay for employee health costs as a legitimate, tax-deductible business expense. The employee receives those reimbursements completely tax-free. No premiums, no middleman insurance company taking a cut.

PHSP vs HSA -- What's the Difference?

Not much. An HSA is simply the most popular type of PHSP. You will see providers, accountants, and the CRA itself use the terms interchangeably. Think of "PHSP" as the legal category and "HSA" as the everyday name. If someone says they have an HSA, they have a PHSP.

How Does a PHSP Work?

The process is straightforward:

  1. Set a budget -- Your business chooses a yearly or monthly health benefit amount for each employee (or for yourself, if you are incorporated).
  2. Employee pays upfront -- When a health expense comes up, the employee pays out of pocket and keeps the receipt.
  3. Submit the receipt -- The employee submits the receipt to the PHSP administrator.
  4. Get reimbursed tax-free -- The administrator reviews the claim and reimburses the employee directly. The business deducts the full amount as an expense.

There are no co-pays, no deductibles, and no confusing plan tiers.

Who Qualifies for a PHSP?

You are eligible if your business is:

  • An incorporated company (with or without arm's-length employees)
  • A sole proprietorship or partnership with at least one arm's-length employee

Sole proprietors without arm's-length employees generally do not qualify due to CRA restrictions. If you are incorporated and paying yourself a T4 salary, you can set one up right away.

What Expenses Are Covered?

A PHSP covers anything on the CRA's list of eligible medical expenses. That includes dental, vision, prescriptions, physiotherapy, massage therapy, mental health, chiropractic care, fertility treatments, medical devices, and much more. If a licensed medical professional provides or prescribes it, there is a good chance it is covered.

Why Small Businesses Choose PHSPs Over Insurance

Traditional group insurance comes with monthly premiums, rigid plan tiers, and coverage you may never use. A PHSP flips that model:

  • Pay only for what you use -- No wasted premiums sitting in an insurer's pocket.
  • 100% tax-deductible -- Every dollar reimbursed is a write-off for your business.
  • Broader coverage -- You are not limited to what an insurance company decides to include.
  • No renewals or rate hikes -- Your costs stay predictable and under your control.

For most small businesses, a PHSP delivers better coverage at a fraction of the cost.

Get Started with a PHSP

Setting up a PHSP does not have to be complicated. Frontier Health handles the full setup, CRA-compliant administration, and fast reimbursements so you can focus on your business.

Simplify Your Business Health Benefits

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