Canada’s best kept tax secret for a One Person Business

By: Updated: July 13, 2017

Buried deep inside Canada's Income Tax Act, there is a secret for a One Person Business . This tax free vehicle has been used by thousands of in-the-know Canadian business owners for almost 20 years.

Let's take a look at what you've been missing.

Business Expense vs Personal Expense

Let's take a quick look at your income tax savings when you pay for an expense through your business as opposed to personally. Your marginal tax rate in Ontario with a salary of $100,000 is 43.41%.  At this rate, for every $1.78 in salary, approximately $0.78 or 43.41% is paid to the federal and provincial government in personal income tax.

Assume the cost of your office rent is $1,000 a month.  Paying for rent as a personal expense would cost your business approximately $1,780. You would earn $1,780, pay the government tax of $780 (43.41%), and then have $1,000 after tax to pay your rent.

 Fortunately, you can deduct the cost of your rent and have your business pay for the expense.  For every $1,000, you and your business will save approximately $780.  Over the course of a year, the savings add up substantially.

Do you have personal expenses that should be a business expense?

Reduce your taxable income by nearly 50%

According to a CRA Interpretation Bulletin IT339R2 and section 248(1) in Canada' Income Tax Act, a Private Health Services Plan is a contract of insurance in respect of medical expenses.  Essentially, it is a tax planning vehicle for you and your business.

To simplify, all of your personal medical expenses (including your dependants), can and should be paid for through your business using a qualified Private Health Services Plan. Carrying over the math from the rent example, you can save up to 43% for every dollar you spend on your personal medical expenses.  For top earners in Canada with a marginal tax rate approaching 50%, the savings from this tax vehicle can be significant.

The Private Health Services Plan, also known as a Health Spending Account, has been adopted by Canada's One Person Business community as a viable and cost effective alternative to traditional insurance.  With no premiums, 100% coverage, and an easy to use format, the Health Spending Account is truly one of Canada's best kept and underused tax secret.

Get our free Beginner's Guide on Health Spending Accounts and discover Canada's best kept tax secret for the One Person Business.

Download Beginner's HSA Guide for an incorporated individual


Learn More: How do Health Spending Accounts work?

Write off 100% of your medical expenses

Are you an incorporated business owner with no employees? Learn how to use a Health Spending Account to pay for your medical expenses through your corporation: 

Download the HSA Guide for Incorporated Individuals

Do you own a corporation with employees? Discover a tax deductible health and dental plan that has no premiums:

Download the HSA Guide for a Business with Staff

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