How contractors can deduct dental, prescriptions, and therapy in Canada

If you're an independent contractor in Canada — whether you're in IT, consulting, trades, or creative work — you know the drill. No group benefits. No dental plan. No prescription coverage. Every health expense comes straight out of your pocket, paid with after-tax dollars.

But there's a way to change that, and it doesn't involve buying expensive insurance you might never use. It's called a Private Health Services Plan (PHSP), and it lets you deduct dental, prescriptions, therapy, and 80+ other health expenses through your business.

The contractor health benefits gap

When you work as a contractor, you trade the security of employee benefits for the flexibility of self-employment. That tradeoff hits hardest when it comes to health expenses.

Consider a typical year for a contractor:

• Two dental cleanings and a filling: $800
• Prescription medications: $600
• New glasses: $400
• Physiotherapy for that desk posture: $500
• Massage therapy: $400
• One therapy session per month: $2,400

That's $5,100 in health expenses — all paid with money that's already been taxed. At a 40% marginal tax rate, you actually needed to earn $8,500 before tax to cover those costs.

T4A vs. incorporated: which are you?

Before we get into the mechanics, it's important to understand your business structure, because it affects how a PHSP works for you.

T4A contractors (sole proprietors): You receive T4A slips from your clients and report income on a T2125 form with your personal tax return. You're self-employed but not incorporated. A PHSP works for you, but your deduction is subject to annual limits based on your earned income.

Incorporated contractors: You operate through a Canadian corporation (often a numbered company or professional corporation). You pay yourself a salary, dividends, or a combination. Your corporation can establish a PHSP with more flexible contribution limits.

Both structures qualify for a PHSP — the main difference is how much you can deduct each year.

What can contractors actually deduct?

The list of eligible expenses under a PHSP is the same as the CRA's definition of medical expenses under section 118.2 of the Income Tax Act. For contractors, the most commonly claimed expenses include:

Dental — This is the big one for most contractors. Routine cleanings, fillings, crowns, root canals, bridges, implants, even orthodontics for you or your kids. All fully deductible through a PHSP.

Prescriptions — Any medication prescribed by a licensed practitioner. This includes ongoing prescriptions (blood pressure, thyroid, etc.) and one-time prescriptions (antibiotics, pain medication after a procedure).

Therapy and mental health — Sessions with a psychologist, registered counsellor, or psychotherapist. In a high-stress contract environment, this is increasingly relevant — and often the most expensive line item that people pay out of pocket.

Vision — Eye exams, prescription glasses, contact lenses, and even laser eye surgery. If you're staring at screens all day (and which contractor isn't?), vision expenses add up quickly.

Physiotherapy and chiropractic — Desk work takes a toll. Regular physio or chiropractic care is fully eligible.

Massage therapy — When provided by a registered massage therapist, massage therapy is an eligible medical expense.

And 70+ more categories — including acupuncture, naturopathy, dietitian services, fertility treatments, medical travel, hearing aids, orthotics, and medical cannabis.

The practical walkthrough: how to claim

Here's exactly how the claim process works when you use a PHSP through Zemma:

Step 1: Set up your PHSP (5 minutes)

Sign up with Zemma and provide basic information: your name, business structure (sole prop or incorporated), and province. No medical questions, no broker, no waiting period. You're active immediately.

Step 2: Pay for your health expenses as usual

Nothing changes about how you access healthcare. Go to the dentist. Fill your prescriptions. See your therapist. Keep your receipts — that's the only new habit.

Step 3: Submit your claim

Upload your receipt to the Zemma platform. The receipt needs to show: the date of service, the provider, the type of service, and the amount paid. Zemma verifies that the expense is CRA-eligible.

Step 4: Receive your reimbursement

Once the claim is verified, you receive a reimbursement. For sole proprietors, this is recorded as a business deduction on your T2125. For incorporated contractors, the corporation pays the reimbursement and deducts it as a business expense.

Step 5: Tax time

Your PHSP administrator provides year-end documentation. Your accountant records the PHSP expenses as a business deduction. Your taxable income drops by the amount of your claims.

Real numbers: what this saves

Let's run the math for an incorporated IT contractor earning $150,000 per year:

Without a PHSP, you pay $6,700 with after-tax dollars. At a 45% combined marginal rate, you needed to earn $12,182 before tax to cover this.

With a PHSP, your corporation deducts the full $6,700. That means approximately $3,015 in additional dollars available for health care every year.

Over 10 years of contracting, that's $30,000+ in additional dollars that can go toward health care — from a plan that takes 5 minutes to set up.

Why most contractors don't know about this

Three reasons:

1. Accountants focus on common deductions. Most accountants will tell you about home office, vehicle, and equipment deductions. PHSPs are less commonly discussed — not because they're obscure, but because they require a third-party administrator and accountants often aren't aware of simple options like Zemma.

2. People assume "health benefits" means insurance. When contractors think about health coverage, they think of group insurance plans with premiums and underwriting. A PHSP is fundamentally different — it's a reimbursement mechanism, not an insurance product.

3. The CRA doesn't advertise it. The Income Tax Act provisions for PHSPs have been there for decades, but the CRA doesn't proactively tell self-employed Canadians about this option. You have to know to look for it.

Now you know. If you're a contractor in Canada paying for health expenses out of pocket, setting up a PHSP is one of the highest-ROI tax moves you can make.