When it comes to tax and investment vehicles, Canadians are familiar with the RSP and TFSA, but what about the HSA? While not every Canadian can qualify for this product, for those of you that do (small business owners), this is perhaps one of Canada's best kept (and most effective) tax secrets.
What is an HSA?
The HSA or better known as Health Spending Account, 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, small 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.
You qualify for a Health Spending Account if you meet the following criteria:
The first step would be to research providers as a Health Spending Account should be administered by a third party administrator. Don't just shop on price. Look for transparency, reputation, and infrastructure. Next, make sure you understand the guidelines. Speaking to your accountant is a good idea for clarification.
Are you a small business owner in Canada? Find out why Health Spending Accounts are such an attractive option for your business:
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