If you are an incorporated business owner, you are probably paying more than you have to for health and dental expenses.
There is a way for your corporation to pay for those expenses at a much lower tax rate.
In fact, not only would you pay less tax that way, but those expenses actually become a deduction.
This is not some shady tax loophole used by the ultra-wealthy to avoid paying taxes on their multiple yachts. This is a tool created specifically by the CRA to alleviate the financial burden of health plans that you should absolutely be taking advantage of to save money.
This tool is called a personal health spending account.
How does it work?
Let’s say you went to the dentist, and it costs $1000.
1. Pay your $1000 bill at the end of the appointment from your personal bank account.
2. Take that bill and submit it to your plan provider.
3. The plan provider will bill your corporation $1,000, plus an admin fee.
4. The corporation pays the plan provider $1,000 plus the admin fee.
5. The plan provider reimburses your personal bank account $1,000.
The payment made from your corporation to the plan provider is 100% tax deductible. And the reimbursement you receive personally is 100% tax free.
In other words? You have not paid a cent for that expense personally.
All you have paid is a small admin fee, typically less than 10%.
Those kind of savings can really add up.
For example, if you accumulated $5,500 worth of health expenses:
- If you are in the 30% marginal tax rate and pull a $60,000 salary, you would pay $1,900 more in taxes if you paid personally than you would if you used the personal health spending account.
- If you are in the 43.4% marginal tax rate and pull a $100,000 salary, you would pay $3,700 more in taxes if you paid personally.
There is absolutely no reason you should give more of your hard-earned money to the government than you have to.
So why doesn’t every incorporated business owner use this tool?
Many are not aware that it exists, or don’t know how to properly set one up.
The benefit of working with a financial planner is that you can focus on continuing to run your business successfully without worrying that you are inadvertently leaving money on the table.
Book a call to learn more about personal health spending accounts and other strategic ways to save your business money.