100% tax deductible health care expenses?
Small business owners, family members and employees can take advantage of CRA rules to deduct 100% of common family healthcare expenses such as dental and othodontic costs, prescription medications and paramedical services. In addition, other health-related expenses that are not covered by group benefits plans including dental implants and discretionary surgeries can also be deducted.
This is not a new tax structure. Since 1986, Canadian tax authorities have allowed such deductions through various structures known as Health and Welfare Trusts, Health Spending Accounts, Private Health Services Plans, or the newer Employee Life and Health Trusts.
To over-simplify, as long as you earn self employment income, have healthcare expenses and pay taxes, you can take advantage of these legal (low cost) structures. Even if only one spouse is self-employed, the entire family can benefit by setting up one of these plans. You also do not need to be earning a full-time income from your self-employment activities; a part-time income is sufficient.
Corporations & Partnerships (Health & Welfare Trust)
If your company is incorporated or registered as a partnership, there is no set limit to the deductions that you can make, thus larger expenses such as children's orthodontics ($5-10K per child) or certain private surgeries can be covered in full. The effect of paying for these expenses with pre-tax company dollars rather than paying with post-tax income dollars and then receiving medical tax credits on one's tax return can be very significant. A new variation of these plans is the Employee Life & Health Trust.
Sole Proprietorships (Private Health Spending Account)
These plans allow the owners of active sole proprietorships to directly write off medical expenses. There is a family annual limit, comprised of $1,500 per adult + $750 per child. Full-time employee coverage may also be available. Health Spending Accounts are variations of Private Health Spending Accounts.
Example of Potential Savings
Family with an Annual Income of $100,000 and $3,000 in medical expenses
Without Private Health Spending Account:
Total Costs: $3,000
Tax Credit: $829
Apx. Tax Savings: $170
With Private Health Spending Account:
Tax Deductible Costs: $3,000
Admin Fee: $300
Apx. Tax Savings: $1,020*
*40% marginal tax rate
$1,020 – $170 = $850
Q: Who Qualifies?
A: Active shareholders, partners,employees and dependents.
Q: How Does it Work?
A: Your company funds a savings account for each owner and employee, administered by a trustee. The employee submits their medical receipts to the trustee and is fully reimbursed.
Q: Must every Employee Receive the same Dollar Amount?
A: No. The Company can establish different funding levels for owners, managers and employees.
Q: How Does the Cost Compare with Traditional Group Benefits?
A: The one-time set-up fee is $250 per group. A 10% (+GST) administration fee is also charged to each account. By comparison, up to 30% of group benefit premiums are paid to the insurance company for plan management (and profits).
Q: Which Expenses are Eligible?
A: The same medical expenses that can be deducted on line 330 and 331 of your personal tax return, as published by the CRA.
Q: Can I Deduct Foreign Medical Expenses?
A: Yes! This includes medical tourism expenses. For example, if your knee replacement surgery was done in Mexico, it is still deductible.
Q: What Happens to Unused Premiums?
A: They carry forward to the next year. Unspent premiums from departing employees revert to the company account.
Q: Why Haven’t I Heard of Health & Welfare Trusts and Private Health Spending Accounts Before?
A: Neither the government nor the big insurance companies have any interest in promoting these plans.
Q: How Can I Find Out More Information?
A: Please call BestQuote Health Insurance at 1-888-888-0510.