Can Self-Employed Canadians Deduct Health and Dental Insurance?

Health Premiums May Be a Business Deduction—but Not Automatically

A recurring question from Canadian freelancers is whether private health and dental premiums can reduce self-employment income. They can in some cases. The CRA permits qualifying private health services plan (PHSP) premiums as a business expense when specific conditions are met.

This is different from simply claiming medical expenses for the medical expense tax credit. The PHSP route reduces business income on Form T2125, but eligibility and deduction limits apply. This article is general information, not tax or accounting advice.

First, the Plan Must Actually Qualify as a PHSP

A product labelled “health insurance” is not automatically a PHSP. The coverage generally must relate almost entirely to expenses eligible for the medical expense tax credit. Qualifying insured plans commonly cover eligible:

The contract must be with an eligible provider, such as an insurance company or a person or partnership in the business of administering PHSPs. Ask the provider to confirm in writing that the plan qualifies under CRA rules; marketing language alone is not proof.

The CRA Has Two Income Tests

You must be actively engaged in the business on a regular and continuous basis. In either the current or previous tax year, you must also satisfy at least one of these tests:

This distinction matters for side hustlers. Someone with substantial T4 wages may fail both tests even if the freelance business paid the premiums. Review both the current and prior year before deciding the deduction is unavailable.

Premiums may cover you, your spouse or common-law partner, and members of your household, subject to the remaining rules.

Solo Operators Face Annual Dollar Limits

If you had no employees throughout the year, the CRA limits the annual deduction, including applicable taxes, to a maximum of:

The limit is prorated by the number of days each person was insured. Paying a larger premium does not make the excess deductible as a T2125 expense.

If you have employees, different limits can apply. Your own deduction is generally tied to the cost of equivalent coverage offered to qualifying arm’s-length employees. Owner-only plans become more complicated once staff are involved, so confirm the calculation before filing.

Do Not Claim the Same Premium Twice

You cannot deduct an amount as a PHSP business expense if another person deducted it or if you or someone else claimed the same premium as a medical expense. One payment cannot produce both a T2125 deduction and a medical expense credit.

If part of the premium is not deductible under the PHSP rules, ask your tax preparer whether the unclaimed eligible portion can enter the medical-expense calculation. That credit has its own income threshold and claiming-period rules.

Keep a Defensible PHSP File

Retain:

List the allowable amount in the other business expenses area of Form T2125 rather than mixing it with ordinary business insurance.

Track the Allowable Premium With ClaimHero

ClaimHero is a free Canadian T2125 expense tracker for sole proprietors. Record the allowable PHSP premium under the appropriate CRA category, attach a clear note, and keep it separate from non-deductible or medical-credit amounts. At year-end, export organized totals for tax software or your accountant.