As an owner of a family business, you can arrange for private insurance to pay for medical bills that provincial medicare programs don't cover.
However, it is often an unpleasant surprise to find that private family insurance plans do not cover most medical services and that premiums often increase dramatically each year.
In fact, there are many entrepreneurs out there who mistakenly think private health insurance is their only option to pay for health and dental expenses. However, thankfully, health insurance for a family business doesn't need to be this complicated.
There is a flexible, cost-effective health and dental solution for family business owners; one that is sometimes overlooked.
A Health Spending Account (or HSA) is a tax-efficient way to pay for health and dental expenses. It can complement a family business' existing insurance plan to pay for expenses not covered (or partially covered), or it can be a stand-alone solution by providing family business owners (and their employees) a reimbursement plan for most health and dental expenses. Either way, the tax advantages of using a Health Spending Account are unparalleled and should be part of your health and dental budgeting strategy.
What is a Health Spending Account?
A Health Spending Account (or HSA) is a tax planning vehicle available to small business owners across Canada. Based on Section 248 (1) of the Income Tax Act and CRA Bulletin IT 339R2, home-based business owners have been taking advantage of this tax break for over two decades.
Instead of paying for medical expenses personally, as an after-tax expense, small business owners can pay for medical expenses through their business, using before-tax dollars through a Health Spending Account.
By converting your expenses from personal to business, you effectively reduce the amount of tax you pay on the cost of your medical bills. If you have a personal tax rate of 40% and spend about $3,000 a year on your family's medical expenses, your business will save about $2,000 in taxes.
Three key factors make a Health Spending Account the ultimate match for a family business:
Using Pre-Tax Dollars to Pay for Healthcare
The Canadian Government considers Healthcare expenses to be tax-free if managed within a Health Spending Account.
A Health Spending Account creates an environment for companies to pay for healthcare expenses directly using pre-tax dollars. When comparing the difference between adding money to your T4 income in order to pay for healthcare expenses versus your business being able to pay directly for them, the savings are significant.
Using an HSA, business owners decide if they want to extend different limits for different classifications of employees.
With a Health Spending Account, the owner has control over how to manage the HSA limits offered to their employees. Different HSA limits may be created for "single" versus "family" and "executive" versus "manager" versus "full-time". Or everyone can simply receive the same amount; it is a decision of the business owner.
An HSA Has You, Your Family & Employees Covered
A Health Spending Account offers a a very wide range of allowable expenses.
Having an HSA doesn't mean much if owners and employees can't claim what they need; however, just the opposite is the case. An HSA covers a much wider range of expenses as compared to traditional insurance plans, and each person can claim as much towards any expense they want (up to their respective yearly limit), including:
- Dental (Basic & Major)
- Prescription Drugs
- Paramedical Services
- Vision Care
In fact, even more types of expenses, in addition to those listed above, are eligible under an HSA.
Interested in learning more about a Health Spending Account? If you're an incorporated family business owner, take a look at Olympia's Beginner's Guide to Health Spending Accounts.