Your Guide to Health Insurance Tax Breaks in Canada

Is health insurance tax deductible in Canada?

Yes, health insurance can be tax-deductible in Canada if the premiums are paid by you and the plan covers eligible medical expenses (e.g., health and dental care costs).

Most people claim their individual health insurance premiums through the Medical Expense Tax Credit (METC) on their personal tax return. However, self-employed individuals may be able to deduct premiums as a business expense if the plan qualifies as a Private Health Services Plan (PHSP).  

Here’s how the METC works:

• The Medical Expense Tax Credit: The METC is a non-refundable credit, meaning it won’t give you a refund by itself, but it can lower the amount of tax you owe, especially if your medical expenses are high. 
• The catch: You can only claim the portion of your total medical costs that go over a certain threshold. If your medical expenses are relatively low for the year, this credit might not help much.

And here’s where self-employed people get a potential edge:

• Sole proprietor or partnership business owners: If you're a sole proprietor or in a partnership, you may be able to deduct your health insurance premiums as a business expense instead. That directly lowers your taxable income, which could lead to bigger tax savings overall. 
• How it works: For self-employed individuals, the business expense route skips the minimum threshold rule and applies no matter how much you spend on other medical expenses. The CRA has limits and eligibility rules for this deduction, so it's worth reading the fine print!

What counts as “health insurance”?

In this context, we’re talking about private health insurance. That includes any health or dental plans you’ve bought yourself that cover medical costs not included in your provincial health care plan. Think things like:

• Prescription medication
• Dentist visits (e.g., exams, cleanings and fillings) 
• Vision care (e.g., eye exams, glasses and contact lenses)
• Paramedical services (e.g., physiotherapy, chiropractor or psychologist appointments)
• Hospital stays in semi-private or private rooms
• Out-of-country emergency medical coverage
  

These are the types of expenses that can fall under the “medical expense” umbrella with the Canada Revenue Agency (CRA). If your plan mixes eligible and non-eligible services, you may need to break it down or ask your insurer to confirm the eligible portion of your premiums.

‍

What doesn’t count as “health insurance”

Life insurance, disability insurance, critical illness insurance, and travel insurance that doesn’t include emergency health care. These types of insurance are either treated differently by the CRA or aren’t considered “medical” in nature.

Which route for claiming health insurance works for me?

To claim your health insurance on your tax return, you’ll need to meet the eligibility requirements for one of these two options:

• METC eligibility: To qualify for the credit, you can only claim the portion of your medical expenses that is above the lesser of 3% of your net income, or a fixed annual amount set by the CRA (e.g., $2,759 for 2024, updated annually).
• Business deduction eligibility: Your health insurance plan must qualify as a PHSP if you’re self-employed. The CRA typically considers a plan eligible if qualifying medical expenses make up at least 90% of the coverage. If you’re an incorporated business owner, you must set up a PHSP or a Health Spending Account (HSA) through your corporation.

The best route typically depends on your work situation. Here’s a quick overview of who’s eligible to claim health insurance as a tax credit or business deduction:

Bottom line: Employees who pay for part of all of their health insurance coverage typically choose the METC. Self-employed and incorporated business owners may benefit more from claiming premiums as a business expense through a PHSP or an HSA. 

Can I get tax deductions on my health insurance premiums?

You may be able to claim your health insurance premiums on your taxes, but the premiums must be paid by you, specifically for qualifying “medical expenses” or an eligible private health services plan.

Most Canadians claim their health insurance premiums as part of the METC. Here are the eligibility requirements:

• Premiums must be paid out of your pocket (fully or partially).
• Eligible premiums include “medical expenses” for things like prescriptions, dental, vision, and therapy.
• Medical expenses covered by provincial healthcare do not count.
• Premiums can be claimed for yourself, your spouse/partner, and dependent children under 18.
• If you pay a part of your employer benefits premium, that portion is claimable.

Keep in mind: Premiums paid towards non-medical cosmetic or wellness services aren’t typically eligible for tax deductions. If your plan includes these, you’ll need to separate that portion and calculate your tax-deductible amount based on the premiums tied to your eligible medical expenses.

Individuals who are self-employed or incorporated may be eligible to deduct health insurance premiums as a business expense if they meet specific criteria, which we outline in the section below.

Special tax strategies for self-employed Canadians

Self-employed individuals may be able to deduct their health insurance premiums as a business expense rather than claiming them as a medical expense (which gives you a tax credit). That means the cost comes off your total income before tax is calculated, so your taxable income is lower, and your tax savings could be higher.

To qualify:

• You must be self-employed as a sole proprietor or member of a partnership (not incorporated).
• The plan must be for you, your spouse or common-law partner, or your children under the age of 18.
• You must be actively earning business income.
• Be paying for a plan that’s reasonable in cost and comparable to what an employee might get in a similar job.
• Your net income from self-employment must be more than 50% of your total income, excluding losses and PHSP deductions.
• Your income from other sources must be $10,000 or less.
• Your PHSP coverage must be paid under a contract with an insurance company, trust company, a person or partnership that administers PHSPs, or a tax-exempt trade union or business/professional organization that you are a member of.
• The CRA generally requires 90% or more of the plan’s coverage to fall under eligible medical expenses (e.g., Prescription medication, dentist visits, vision care, paramedical services).

What’s considered a “reasonable” cost for health insurance?

The CRA sets certain limits to ensure you aren’t deducting a health insurance plan that has an excessive cost. 

For example, if you're a freelance graphic designer and you’re paying $5,000 per year for extended health coverage, the CRA might flag that. But if your plan is similar in scope and price to what an employee at a small agency might get, you're likely in the clear.

On average, health insurance costs between $75 and $150 per month, or around $1,350 per year. It may be wise to seek health insurance quotes from other providers, such as PolicyMe, if you feel like your premiums are higher than normal.

Example scenario: Self-employed deducting health insurance

Let’s say you’re a freelance event planner in Toronto.

• You’re a sole proprietor, not incorporated.
• You earn $80,000 in net self-employed income for the year.
• You pay $2,000/year for a private health insurance plan that covers you, your spouse, and one child.
• The plan includes dental, vision, prescriptions, and some paramedical services.

Option A: Claiming it as a personal medical expense

• Tax solution: You’d use the Medical Expense Tax Credit.
• Eligibility: The Medical Expense Tax Credit only applies to premium amounts over 3% of your income or over $2,759 (whichever is less). 3% of $80,000 = $2,400.
• Outcome: Since your premiums are $2,000, which is less than both $2,400 and $2,759, you wouldn’t get anything back since you’re below the threshold.

Option B: Deducting it as a business expense

• Tax solution: You can deduct your premiums as a business expense. That $2,000 comes off your taxable income. So instead of paying tax on $80,000, you're taxed on $78,000.
• Savings: If you’re in a 30% combined federal/provincial tax bracket, that deduction could save you: $2,000 x 30% = $600 in tax savings.
• Eligibility: Since this is a deduction, it applies even if your medical expenses are relatively low. When you deduct health insurance premiums as a business expense (as a self-employed person), you get the tax break, no matter how much or how little you spent on medical expenses that year.

In this case, you’d go with Option B and deduct your health insurance under your business income, which will provide an immediate tax relief. Just remember the CRA only allows this if your plan qualifies as a PHSP and you meet the income and coverage requirements.

Example scenario: Employed deducting health insurance

Let’s say you’re a marketing manager in Vancouver. 

• You’re a full-time employee with a salary of $70,000.
• Your employer provides group benefits, but only covers part of the premiums.
• You pay $1,200 per year out of pocket towards the plan, which covers yourself and your spouse.
• The plan includes dental, vision, and prescription coverage.
• Since you’re an employee, you won’t be able to deduct premiums as a business expense.

Your only option would be: Claiming it as a personal medical expense

• Tax solution: You’d use the Medical Expense Tax Credit.
• Eligibility: The Medical Expense Tax Credit only applies to premiums and medical expenses above the lesser of 3% of your net income or $2,759, which is the CRA’s fixed amount for the year. 3% of $70,000 = $2,100.
• Outcome: Since your premiums are only $1,200, they won’t exceed either threshold, and you won’t qualify for a credit. However, you could add other medical expenses (like mental health therapy or paramedical services paid out of pocket) to push your total medical costs over the threshold.

Now, let’s consider the possible outcome if you’re employed and cover your entire health insurance premium yourself: 

• You’re a full-time employee with a salary of $75,000.
• Your employer does not provide any workplace benefits.
• You pay $3,000 per year for a plan that covers you and your common-law partner
• The plan includes prescription, dental, vision, and paramedical coverage.
• Since you’re an employee, you won’t be able to deduct premiums as a business expense.

Your only option would be: Claiming it as a personal medical expense

• Tax solution: You’d use the Medical Expense Tax Credit.
• Eligibility: The Medical Expense Tax Credit only applies to premiums and medical expenses above the lesser of 3% of your net income or $2,759, which is the CRA’s fixed amount for the year. 3% of $75,000 = $2,250.
• Outcome: Since $2,250 is lower than $2,759, your threshold is $2,250. Your total premiums paid are $3,000, so your eligible claim will be $750 ($3,000 - $2,250 = $750).
• Savings: The Medical Expense Tax Credit is a non-refundable credit, and your tax savings will depend on federal and provincial rates. For example, the federal rate is 15%, so your federal tax savings would be $750 x 15% = $112.50. Combined with a provincial credit of around 5%, you might end up with an additional $40 to $60 for a total savings amount of $150 to $170.

In this case, your premium wouldn’t translate into a refund, but it would still reduce your taxes by around $150 to $170. Also, you may be able to increase your total claim and tax credit if you or your partner had additional out-of-pocket medical costs.

How do I claim my health insurance & medical expenses?

For most individuals, you’ll claim health insurance premiums under Line 33099 or 33199 on your personal income tax return.

• Line 33099: For yourself, your partner, and your children under 18
• Line 33199: For other dependants (like parents or grandparents)

Keep your receipts and statements from your insurance provider. Receipts typically aren’t submitted with your tax return, but you may need to submit them if the CRA asks.

If you’re self-employed and your plan meets the CRA’s requirements for a PHSP, you’ll report eligible premiums as part of your business expenses in the self-employment section of your return.

• Report under “other expenses”: Self-employed individuals will list health insurance premiums under line 9270, labelled “other expenses”, on their Form T2125 (Statement of Business or Professional Activities).

To double-check if a specific expense is eligible, use the CRA’s searchable list of medical expenses: Eligible medical expenses from the CRA.

Bottom line: health insurance can be tax deductible

In Canada, private health insurance premiums can be tax-deductible, either through the Medical Expense Tax Credit or the self-employed PHSP deduction. But eligibility depends on what the plan covers, who paid the premiums, and your tax situation.

If you’re self-employed, the tax advantages may be even bigger. Just be sure to follow the CRA’s guidelines and keep documentation in case you’re audited.

If your situation is complex or if you’re unsure what qualifies, it’s worth running things by a tax professional.

FAQs: Health insurance and taxes in Canada