If your business is incorporated and based outside Quebec, you have a unique tax saving opportunity.
It’s a Health Spending Account, sometimes called a PHSP, and it allows your company to reimburse you and employees’ out-of-pocket medical expenses, tax-free.
Many families have around $3,000 per year in out-of-pocket medical expenses. This might be dental bills, prescription drugs, even premiums paid out-of-pocket to non-provincial health insurance plans, such as Blue Cross.
Without a Health Spending Account (or HSA), you would have to take $4,300 or more out of your company to end up with the $3,000 to pay for these expenses. At the end of the year, you could try claiming the $3,000 back on your personal income tax; but typically this would save you almost no taxes! CRA will disallow the first portion of any amount, and will only credit you at the lowest marginal rate for the rest.
However, with a Health Spending Account, you would claim your out-of-pocket medical receipts through your Health Spending Account provider. Your company will then be invoiced for the approved amount, plus a small administration fee (typically 10% of the approved amount), and the approved amount will be paid out to you. GST/HST will be charged only on the admin fee.
In this way, your $3,000 out-of-pocket medical expenses will cost your company only $3,300 (or less for family businesses that selects an Olympia flat plan rate) via the Health Spending Account, instead of $4,300 or more! With or without a Health Spending Account, the money for your out-of-pocket health expenses is probably coming out of your company anyway; so you might as well save the taxes. Your company can invest its savings back into the business, or pay it out to you as additional salary – either way you’ll come out ahead. This is how small businesses save money with a Health Spending Account.
A long list of health expenses are eligible, including dental, vision care, prescription drugs and almost any service performed by a registered practitioner (including massage therapy, laser eye surgery, medically-approved weight loss and much more). In fact, far more expenses are covered than by typical insurance.
If you are growing your business and adding employees, this is also the cheapest way to provide them with employee benefits. Traditional group insurance is hard to find for smaller companies, and far more expensive than a Health Spending Account.
Tips On Finding A Good Health Spending Account Provider
A good Health Spending Account provider will allow your company to control precisely what it’s willing to spend on health benefits. It will allow you to categorize your employees, and apply different spending limits to each category. It will have systems in place that ensure that employees won’t be reimbursed for more than your budgeted amount, and will provide you up-to-the-minute reporting on benefit usage.
When choosing a provider, also make sure that they have been reviewed by international tax and accounting firms for 100% compliance with CRA rules, that they have an online system and that they guarantee proper review of each medical receipt.
Olympia Benefits is the leading Health Spending Account provider in Canada, with over 20 years of experience and serving more than 55,000 businesses across the country. Our Health Spending Account is entirely online, very comprehensive and compliant with CRA rules.
Related Content: Health Spending Account for Small Business (Short Video)
Interested in learning more about a Health Spending Account? If you're an incorporated consultant, contractor, professional or family business owner, take a look at Olympia's Beginner's Guide to Health Spending Accounts.
Or do you own a small business with employees? Download Olympia's Beginner's Guide to Group Health Spending Accounts.