Take a deep dive into the best kept tax secret for small businesses, Health Spending Accounts. HSAs help business owners reduce taxes and healthcare costs. This episode walks incorporated professionals through everything they need to know about Health Spending Accounts, from what they are to how they are CRA compliant.
Daniel Gillis is a benefits and insurance specialist based in Calgary, Alberta. He is founder and president of Westshield Financial Solutions Inc. and a partner with Olympia Benefits Inc.
Daniel began his career as a personal banker with RBC Bank in 1990, working at branches in Manitoba, British Columbia and Alberta. In 1999, he became an agent with RBC Insurance. He continued his career as an independent insurance and benefits advisor after forming Westshield Financial Solutions Inc. in 2003.
As an independent insurance advisor, Daniel connects with life and disability insurance providers to develop tailor-made insurance solutions for his clients. As a partner with Olympia Benefits Inc., Daniel also helps incorporated business owners save money by setting up Health Spending Accounts for themselves and providing benefits for their employees.
Educational background and professional designations - Daniel graduated with a diploma in Business Administration from Red River Community College in Winnipeg, in 1990. He received his designation as a certified financial planner, having completed the CFP Program in 1997. He has also completed the Canadian Securities course and maintains his life and accident & sickness licenses in BC, AB, SK, MB, ON and NS.
A Winnipeg native, Daniel currently lives in Alberta with his wife, three kids and a brown lab named Dixie. Outside of the office, he enjoys camping with his family, snow skiing in the Rocky Mountains, spin class and daily walks with Dixie.
Morgan Berna is the host of Olympia Benefits’ podcast, The Small Business Mastermind. Her background is in marketing, journalism, and broadcasting. Passionate about small business, she aims to create content that inspires and educates listeners.
Daniel Gillis: I get that question once in a while or there is no downsides and that's always my answer. It's instantaneous. There is no downsides to this. Zero. It's not possible to have a downside when you are setting up a structure that allows you to reduce the cost of your health and dental bills.
Morgan Berna: You are listening to the Small Business Mastermind, a podcast created to help small businesses juggle business, finance health, and wellness. I'm your host, Morgan Berna. If you'd like to subscribe to the podcast visit olympiabenefits.com/podcast.
The Small Business Mastermind is brought to you by Olympia Benefits. If you're looking to reduce your health and dental costs visit olympianbenefits.com.
Morgan: Hello, and thank you for tuning in to this episode of The Small Business Mastermind. After producing episodes for over a year now. We figured it was time to bring someone on to talk about what can be one of the best-kept tax secrets for small businesses. On this episode, we'll be talking all about health spending accounts, which offer an alternative way to pay for your health care costs, while saving on tax and avoiding costs like deductibles and co-payments. To keep this transparent, Olympia Benefits is a service provider for health spending accounts. And our guest today is a partner at Olympia.
However, Olympia's goal has always been to be honest, and I wouldn't bring someone on this episode if I didn't feel they could truthfully explain these plans. After you've listened, I encourage you to do your own research and see if this is a type of plan that'd be a good fit for your business. I'll be sure to link some resources in the podcast description.
Today, we'll be talking specifically about these plans for incorporated professionals. And in a few episodes, we'll revisit the topic for companies with arms-length employees. Although a lot of the information is similar so you can listen to this to get a general idea. I hope you enjoy this episode and that if you haven't heard of Health Spending Accounts previously, that this gives you an idea of how you can be saving on health and dental costs. So, without further ado, let's jump right in. And I'll be talking to you again at the end of the episode.
Morgan: Thank you Dan so much for being here today.
Dan: Thanks, Morgan. Looking forward to it.
Morgan: Daniel Gillis is a benefits and insurance specialist based in Calgary Alberta. He is a founder and president of Westshield Financial Solutions and a partner with Olympia benefits. Daniel began his career as a personal banker with RBC Bank in 1990, working at branches in Manitoba, British-Columbia, and Alberta. In 1999, he became an agent with RBC Insurance. He continued his career as an independent insurance and benefits advisor after forming Westshield Financial Solutions in 2003.
As an independent insurance advisor, Daniel connects with life and disability insurance providers to develop tailor-made insurance solutions for his clients. As a partner with Olympia Benefits, Daniel also helps incorporated business owners save money by setting up Health Spending Accounts for themselves and providing benefits for their employees. So today, we are going to be talking all about health spending accounts and specifically from the perspective of incorporated professionals. So, we are going to touch on everything someone would need to know. I am going to ask you, I have a ton of questions. And then for anyone listening who might have employees, just stay tuned because we are going to release an episode, specific to folks with employees as well at a later date. Okay. So let's start off with quite simply, what is a health spending account and what does it cover?
Dan: Okay, so, a Health Spending Account is a plan or a structure is set up by a small business owner, that allows an incorporated business owner, which we're going to come to, so that small business owner that has a corporation can set up this plan that allows their business to expense their health and dental bills and for a tax-free reimbursement to flow back to them to pay for those personal health and dental bills. A Health Spending Account is a flexible benefit if you will, that the employer pulls from their corporation and its tax-free in their hands. Obviously, very attractive because there is not too many things that work that way. But in this case, the Health Spending Account covers pretty much all of their health and dental bills that they are going to pay for, there is an eligibility list, but it's wide open.
Pretty much anything that people can think of under health, dental, vision, prescriptions cap. Paramedical practitioners would be things like a chiropractor, massage therapists, physiotherapists, and a whole bunch of other services that you would potentially be using day to day of. So, covers all of those things and makes this a tax free benefit. So, we're going to reduce costs and that's basically what a Health Spending Account is.
Morgan: And I believe there are about a hundred and twenty-four things you can claim if that's right. And it is quite a wide range because I know it can be things like orthodontics as well and that kind of thing.
Dan: Yes. Orthodontics, vision, if you're having LASIK surgery or some other service for a three-year optometrist or ophthalmologist, including of course your eye examination, your frames, and lenses, contact lenses, even the contact lens solution is eligible, or how about an audiologist get a lot of calls about that. Services that people kind of the bigger ticket items that, they go, "Wow, I got to pay this bill. How do I do it?" This plan essentially makes it a tax-free benefit, whether it's hearing aids or otherwise. We are just replacing these services as you are moving through life.
Morgan: And with it covering health and dental, how would this compare to a more traditional insurance plan or a traditional health insurance plan?
Dan: Traditional health insurance plan, we're talking about it in regards to a small business owner. Those business owners that we looking at have this plan for themselves, they’ll be looking at it just for themselves and their families. They are a business that's incorporated. They don't have any employees and they're looking at, "Gee, how do I pay these health and dental bills? Is there a better way? Is there so-called insurance for it?" Well, no, there's actually not insurance for it.
The reality is, health and dental services aren't insurance services. Health and dental services are just health and dental services. Which is kind of goofy, [chuckles] if you think about it. It's kind of funny, but it's the same time people kind of get it because I get those calls they go, "You know, I kind of looked at that insured plan. I looked at the premium. It didn't make any sense because I had to pay more than that. I am paying in the first place." That's right. Guess why? Because they've got to pull your money so they can pay it back to you. It makes no sense, does it? It shouldn't make sense because insurance is for things you never plan to do.
Everybody has that understanding as well. If you've owned a car, or you own a home, or maybe have a family of life insurance. Well, these things are catastrophic events. If my house burns down, that's going to be a bad day and I better have insurance for that. That's called risk transfer. Now let's look at that for a second, because the answer to the question, how does the spending account different to a traditional health insurance plan? It is about what's insurance and what's not insurance.
I think those simple examples of insurance makes sense. I obviously can't retain the risk of my house burning down. I have to pay a premium, transfer that risk to an insurer, that's a risk transfer vehicle. That is insurance. That is like if you go back in time that is pass the hat. That is how it all started. In a community, pass the hat, everybody puts a little bit in, somebody has a catastrophic event, they get paid out of that hat. That is insurance. Go to the health and dental services. Okay, a health spending account is a tax plan, it allows you as the business owner to write off your health and dental bills. In simple terms, we'll get to the nitty-gritty details on the technical of it in a moment, but just for simplicity sake, just to understand what it is, write off your health and dental bills and your business will be reimbursed tax-free. Deduction for the corporation, a tax-free benefit for you personally. Now we are getting somewhere.
There is a benefit to you in that. It is going to reduce your health and dental costs. And it's not for insurance, going to the chiropractors are, going to your dentist, your dentist calls you, you call your dentist, you make an appointment, you go down and have your checkup. That is not an insurance event. That is simply maintenance services, planned and maybe some unplanned. But an unplanned dental event is not a catastrophic event. It may be very painful.
Morgan: I was going say I don't know if I agree with that when I get a cavity. [laugh]
Dan: [laugh] And you should disagree with that because it's expensive. Orthodontic work is very expensive. But the point is, it's not an accident. My house burning down is always going to be an accident. It is going to be something that is an unplanned catastrophic event. Personally, I have a bridge in my mouth, it's a tooth that fell out the little- there's no adult tooth to replace it. So, I have a bridge. It's expensive. It's about thirty-five hundred dollars. About five years ago and I had it replaced.
The point of my story there is that, it's not an unplanned event. That's a maintenance event. I can't expect an insurer to go, "Hey, we'll replaced that bridge for you." Because is this dental insurance? No, that's a maintenance event. The difference is the health spending account is going to reduce the cost of those bills by making them tax-free for those planned health and dental maintenance events.
A traditional insurance plan is going to put a premium to something that is not insurance. It's going to always cost you more than you are ever going to get back. And you don't want to do that because that's really what I call an expensive budget. You just bought a budget or someone's pulling the money out of your account and keeping it if you don't get it back and use it. Good luck trying to get it all back because you're never going to do that. It's not geared that way. It's geared to pay you less than you pay. And we're really talking about maintenance events anyways, so why bother?
Morgan: It sounds like, instead of paying for, in case you have to go to the dentist, or in case you have to go to the eye doctor, you're just paying for the things you do and then you're using that as essentially a tax write-off.
Dan: That's it. And that premium, you would have paid in that insurance plan. Keep that at home, keep it in your business, keep it before tax, and use it to pay your health and dental bills. And if you take that premium amount you just set that aside even in savings account in your business, you are going to have that money growing and accumulating. You will accumulate enough money overtime to pay all those health and dental bills. Even the surprise ones. I am not talking from a point of no experience because I'm a family guy myself. I have three kids and we're a family of five, and those are orthodontics bills were really expensive.
But if I look back over the years, and if I look back if I was paying those premiums, versus if I just keep them internally. They accumulate to a lot of money. In fact, very specifically going back to 1999, it was three hundred dollar a month of what I would have paid. If I fast forward to today and look at what I would have paid per month and what we use, it pales by comparison.
Morgan: You'd mentioned there that it's tax-free. And language I've seen float around about health spending accounts is that it's a hundred percent tax free to you and one hundred percent tax-deductible for your corporation. Could you explain what that means and how exactly that works? You've touched on it a little there, but just in some more detail.
Dan: That means the employer which is the business owner corporation is going to reimburse them for their health and dental bills. That reimbursement for the corporation or their business is going to be a pre-tax business expense. It's going to be expensed reducing their corporation's income before taxes, the money is going to flow out to that person tax-free. That's made possible by the income tax act and there's a little part of that act a little section called Private Health Services Plans, which you don't really do need to know a lot about. You just need to know that's what governs these plans.
If you're a small business owner, an incorporated professional, or incorporated contractor of some sort, and it's you and your family, well, you've got the structure set up already to make this possible. All you need to do is plug in the components, which is, setting up the plan. Like the plan with Olympia and this case, that sets up in the corporation. That's the employer. There's an annual limit, up to which you can claim all your health and dental bills. The employee and family then go forward when they pay their health and dental bills, really important that they pay them personally because they are acting as that employee again.
So, that business owner and a spouse and kids if that's relevant. They pay those bills personally. They then file the claim with the administrator. In this case, Olympia benefits. So, what's happening? It's the employee paying a health and dental bill, filing a claim with the administrator saying, "Hey, I just paid a dental bill for five hundred dollars. Please reimburse me." They then have their employer, their corporation moves the money to the administrator, that this case, a five hundred dollar example. Five hundred dollars flow from the corporation to the administrator to Olympia and then back out to their bank account, their family, tax-free. A deduction for the corporation a tax-free benefit received by the employee in their bank account.
Morgan: Awesome. I'm going to ask you about qualifying in just a moment. But first, is this something that can be used in any province?
Dan: It can. Except for the province of Quebec. It's able to be used in any other province in Canada. Quebec taxes these benefits for all employees right across the board. They're the only province where it wouldn't make any sense to use a plan like this because it's taxable, there's no advantage.
Morgan: You might as well just directly pay for your medical expense there.
Dan: Yes. Well, if I'm talking to someone from Quebec, I would say, explain that to them and then and then explain to them the same thing that we touched on in that first question. Or the second question, how does it compare? And that was, pay those bills because their maintenance bills, they're not insurance. Don't look for that insurance plan because you only want to pay insurance for things you never plan to do for catastrophic events. things that risk that I can't assume and you can't assume. That's a really great way to remember. Where to put premiums, to catastrophic risk makes sense, health and dental services probably don't make any sense at all.
Morgan: So let's talk about how you would qualify. What does a business owner need to qualify for this plan?
Dan: To qualify for the plan, they need to have a corporation and they need to have income paid to themselves annually as a T4 income. I guess that would also cut a point to a third component. That's important is you have to have earnings in the business annually as well because those earnings are going to be reduced by the dollars that are claimed for your health and dental bills. Got to have earnings in the corporation. Got to have a corporation. If you have to have a corporation, you have to be incorporated to set up this structure. And then of course as the employee and family, that employee needs to have or that business owner needs to have income flowing to them as employment income or in other words, T4 income. I know a lot of business owners ask that question. "I only take T5." I hear that all the time. "I only take dividends." So, it's important that they understand that they're going to have to take some income annually as T4 income in addition to the dividends. They can still mix their income and be tax mark to reduce the taxes they pay. That's obviously is going to be in their best interest, but some money has to flow as employment income.
Morgan: Yes, I was going to ask you about the dividends but that covers it. So. thank you. With a lot of the more kind of traditional health insurance, if you go to sign up and you have a pre-existing health condition, it'll often change how much you're paying the rates. Does that apply here at all? What happens if you have a pre-existing health condition?
Dan: Pre-existing health and conditions do not come into play, because this is a plan that set up by the business owner in their corporation, that's going to reimburse them for their health and dental benefits, they're eligible health and dental benefits. When they set the plan up, they're just still spending their own dollars. So, there was never a waiting period. Pre-existing conditions never come into play. That only relates to an insurance plan, where maybe you were buying- because you can buy insurance is for certain things like catastrophic drug coverage as an example.
In that scenario, if I went to an insurer and said, "You know, I really want to buy a catastrophic drug plan, because I understand that in Canada the provinces typically pay for most of the drugs that I'm going to need if I get sick and I'm in the hospital." But I saw I saw a horror story in the newspaper and somebody had cancer and they were very sick, and they needed this specific drug, but that drug was a trial drug. The provinces just don't have it on their list of approved drugs yet.
I actually got a call from a guy exactly like that. He had the exact scenario, ten thousand dollars a month. This is a catastrophic event. And so, you can buy insurance like that. But they're going to screen you. In other words, they're going to ask you and me. "Do you have pre-existing conditions? Please fill out this health questionnaire." Because no insurance company is going to go on risk if I'm already predisposed to that if I already- maybe I'm already sick or I already have that condition why I can't buy it. Kind of like, buying collision insurance on your car after the collision. Of course, you can't do that. So, there's the difference. Buying that insurance, maybe you're buying travel insurance is another example, and if I'm over sixty, I'm going to have to fill out a health questionnaire. I might pay different premiums or I might have a longer pre-existing condition because they might have to pay a large claim out. So, that's real insurance. But we're talking about this plan, health, and dental benefits. There's no risk in that respect. It's just setting up the plan and using it pre-existing conditions never come into play.
Morgan: It makes me think, because diabetes is so common in Canada. Something like that would typically raise your premiums with plans. But with this, since you're doing kind of more maintenance, you'd be buying regular things every month. Then doesn't matter. You can still use it. You still get the tax benefit.
Dan: That's right. You pay for the- if it's a syringe, if you're taking insulin or maybe you're buying the insulin, which by the way some of the provinces pay for insulin, not all of them, but some of them do they'll cover the cost of some of that insulin. But the tapes and I know I talked of diabetic to have those questions. They can claim all of these things out of the plan. If they were to look at a traditional plan with insurance, they're already paying that individual plan which we talked a bit about, they're going to get declined. They'll get screened out in the pre-existing condition and they won't be able to claim any of those things in that plan.
Morgan: So what about an age limit?
Dan: There's no age limit kind of like the pre-existing condition question. If I am a business owner and I have a corporation, and I'm taking wages, I can set this plan up. And I can use this plan for my entire lifetime because there's no limit to the ability of a person to run a business. If they have got that ability and they're running that business. I've talked to lots of business owners in their seventies and a couple in their eighties who run a business. They set the plan up, they run the plan, they still taking a wage and away they go. Pay, file, claim, write it off in their business, be reimbursed tax-free, a beautiful program for them as well.
Morgan: You'd mentioned they think a little bit about this but, is it just for the business owner or can you also cover your family, your dependents, that sort of thing?
Dan: Yes, and I did touch a bit on it. But yes, you're right. That question comes up all the time. "Oh, by the way, can I claim for my spouse and my kids eligible and how do I do that?" And a lot of times I kind of relate it back to the traditional plan with an employer where if you were hired on with an employer an added a benefit plan, well, then you would typically know that I'm going to add my spouse and kids if that's relevant to that plan. I'm going to be able to claim for everybody.
The same rules apply here because they fall under the same guidelines of the income tax act plans are all governed by the same part of that act. So, that small business owner sets up the plan again, they have got the corporation, they're taking income of wages, when they're enrolled on the plan as it as the employee, there then asked right on that enrollment, one enrolls your spouse and kids and you can then claim for everybody.
Morgan: And I have to ask because everything you said so far is sounding really good. It sounds like a great option. You probably get this one a lot too, but is this legal? Is this a tax loophole?
Dan: I love that question, and you're right. The question comes up a lot. People look at it and they're going, "How come I didn't know about this? Why didn't someone tell me?" I've had people get pretty upset that their accountant didn't tell them or why didn't they know? It's just very frustrating. I hear this one all the time. I paid an Orthodontic bill for three kids in the last four years and we spent tens of thousands of dollars in some cases. The reason is, insurance is what the driver is. So, most of everything people read out there as both health and dental insurance. And these plans are typically understood through word of mouth, or a referral, or maybe their dentist referred them, or their accountant tells them about the plan, or they find us online and they punch in some question like, "I got to pay for an Orthodontic." And then they find us and then they go. "Wow. I didn't know I could do any of these things."
So, it's just a matter of understanding what it is, but who really understands insurance and health and dental insurance, and most of us kind of glaze over and go, "Yeah. I kind of know. Yeah, I have a benefit plan" Here's the other one, I've just been paying for them out of my pocket because it doesn't make any sense for me to buy that, individual health and dental insurance plan and then they find out about this. That's probably a better scenario than having bought that individual plan. Having spent the money. Because I get those calls too where they are upset because they spent so many dollars, they get so little in return. It would have been better off just to pay directly and then find this plan and then write it all off and make it a tax-free benefit.
From a legal standpoint, it's sanctioned by the income tax act. So, yes, completely legal. That little part of that income tax act that I mentioned a while ago, Private Health Services plans, that's the legislation that's written, that makes this plan possible. So, whether you have one employee, ten employees, or ten thousand employees. The plan is the same. It's exactly the same thing. So, what the legislation says on the legal side of things is, an employer can set up as a plan, reimburse employees tax-free. Go to this small business owner, they have a corporation or drawing income as a wage. Can they set up the plan? Yes. One employee, 10 employees, 10,000 employees, in their case they have one employee.
Let's say it a year or two from now, they have another employee. They hired someone to help them. They can scale out the plan, look at the group plan, add an employee on, provide them the same tax-free benefit, and set that limit. All we're doing here is setting up that business owner as of the employee, under the plan structure that's made possible by the income tax act. So, yes, it is legal. It is not a loophole. It is, as I said, a sanction plan that allows the business to reimburse the employee. So, no loopholes, and completely legal. It is good. The other thing I hear, “Is this too good to be true?” Well, no, it is good, and it is true and it is legal.
Morgan: I wanted to ask if you could walk us through a little bit about how a claim is made? Because I know that process can be a little bit confusing.
Dan: So claims, we're going to assume now the plan is set up which is a simple process that done online. I think ready to talk about that as well at the moment. The plan set up now, so, how are claims made? I've got that corporation, I'm that business owner, I'm that employee, I've set the plan, I go to my dentist or maybe someone in my family goes to the dentist, or maybe to the optometrist or the audiologist, or the chiropractor, or the physiotherapist, or they're getting acupuncture or any of these services that people choose. They go and they pay that bill. They pay it personally. We want to remember that that person is the employee and or their family, that's paid a bill personally, they come back, they now file a claim. Two ways to file a claim, one, you do it on the app that you can download for Apple or Android which is really the best way to make the claim. I think in my opinion because it's fast it's easy and it's right on the spot. So, if I paid the bill the dentist today, I leave the dental office. I'm sitting in my car open up the app, I punch in the date of the service, who it was? If it's me or someone in my family, and then put the dental service in. Dentist, practitioner, amount of claim, I take a picture. I've uploaded it. I'm done. It's really in five minutes. I'm done the claim and once I've uploaded that, now it's gone to Olympia and I can also do the same thing online, by the way. I can go home if I don't have time in the car. I go home, I log into my computer later on that night or some other times. I don't have to do it that day. If I want the money to flow that day, I'll do it that day. I can claim online, log in, do the enter claim, the same process, put the information, upload it. Once I've done that, the money then flows from my corporation to Olympia and it's processed and is paid back to my personal bank account. Claims are done either online, logging into your plan, or on the claim app on your mobile device.
Morgan: Can I just get you to clarify? So, you're saying there you pay personally and then your corporation pays Olympia. It sounds almost like you're paying twice. Can you clarify?
Dan: Yes. Another good question. I get that question all the time. "Okay, wait a minute. Back up. I don't just make sense because I just paid my dentist. Now. I got to pay Olympia again. I might not paying twice." Yes, in that scenario. It looks like I'm paying twice, but the way I've learned to explain this over the years or my practice through trial and error is, how do you explain that for people to understand? Why isn't this a two-payment thing?
What I try to do is explain on the personal side, so as that employer and family in sort of that employee, the business owner in the family, they got to pay that health and dental bill personally as the employee. They do that, now it's on their- let's say it's on their personal credit card. Let's say it's a thousand dollars dental bill. They paid it to their dentists with their credit cards. They now enter the claim online. Now, what has to happen? Well, the employer, their corporation has to move the money to the administrator, to Olympia.
So, now there's a second flow of funds coming from the corporation to Olympia that thousand dollars. That employer and their corporation funding is matched with their personal employee claim, thousand dollars dental claim, thousand dollars from the corporation. That money then flows back out to that business owner, to their personal bank account. Now, they have on their personal account a thousand dollars. They move that money to their credit card. They've paid their credit card.
Now that's on the personal ledger, they've zeroed out at a thousand dollar charge on my credit card for my dentist. I'd let a thousand dollars back in my hands tax-free from Olympia Benefits in this case. I'm zero on my personal ledger. That one thousand dollars dental bill and expense are now resting in my corporation and it's going to be expensed at the end of the year. So, payment to the dentist, payment from the corporation, zero personally, thousand dollar expense or so it retained expensive in the corporation.
Morgan: And so, if I'm understanding right, then you as the employee, that doesn't count toward your income tax and then for the business it's becoming like a tax deduction.
Dan: That's right. So, personally, that thousand dollars that the employee receives back and their personal account tax-free. That's not part of their personal income. It's not recorded on the personal tax return as personal income. It is completely tax-free and the corporation has that thousand dollars as a business expense that's going to show up under wages and benefits, which is a full deduction for the corporation. Reducing the corps income before taxes calculated. It's gross income, all of the expenses including this, and then net-income, which is where the tax is calculated.
Morgan: Okay, and then for that reimbursement, is there a time period with it? How long does that typically take?
Dan: Okay. The reimbursement takes, let's say two business days. That's a pretty safe bet. If I paid that thousand-dollar dental bill today. I file the claim today, and then I fund it, which is I'm instructing my corporation to pay that bill pay, that thousand dollars in this example, that thousand-dollar dental cleaning example to Olympia Benefits. I paid my dentist this morning, I've gone in and had that bill payment flow to Olympia Benefits same day. I will have my money in two business days.
Morgan: Fantastic. Listening to this, I'm wondering if you get this one. If you can use this as a way to kind of reduce your corporate income and also get that personal benefit, I imagine you could just write off a ton of money or use a lot of funding for this. So, is there a limit to how much you can claim or how much you can put into the health spending account?
Dan: Technically, if you were to read the part of the income tax act that governs these plans. They don't talk about limits. And the reason it doesn't talk about limits is because, the employer, if you imagine them an employer with some employees at setting up this plan, which we also do, we're going to talk a bit about that at the end, that employer is going to set a cap. So, if I have five employees, I'm not going to say to them, "Here's your Health Dental Plan spend whatever you like." I'm going to put some kind of a limit that I could afford on that.
But it comes to the business owner that doesn't have employees like we're talking about so, they're got that corporation, their family, that paid as an employee, do they want to limit? No, they wouldn't want to limit. They would want to claim everything and anything, which, that's eligible, which they can do. We cap that plan and the limit is fifteen thousand dollars. It's high enough. I get some comments that are less, are very high limits.
Well, it is, in some respects, but in some respects, it's not. And if you think about the family that has- I just spoke to a family in the last couple of weeks here that had two kids with her. Well, the bill was about twelve to fifteen thousand dollars is what they were going to be spending and then they hadn't gotten to the other bills for the family that may have during that year.
And so, in their case both mom and dad are employees. They are both enrolled under the plan. Each of the limit of fifteen thousand dollars in that case. We do cap it. There has to be a limit. If there's not a limit on the plan, then, it then could be looked at as it's a taxable shareholder benefit. Olympia will cap that at $15,000, but high enough to claim all those health and dental bills you would typically have with a family during the year.
Morgan: Okay, and if a business owner was wanting to discuss this with our accountant, to run through it, make sure that everything lines up for them. What are some things they should discuss?
Dan: It's a good idea that question comes up a lot. We have an accountant guy that I share with business owners. They can share with their accountant, talks about the plan, because some business owners, they're trying to understand it themselves. Maybe they don't understand it very well. They're just learning what this plan is all about. Sounds too good to be true. I need to talk to my accountant. Great idea. Talk to your accountant. Take that guide. If you don't know where to get it, we’ll send it to you. And then you're going to talk to your accountant anyways. You're going to talk it into the year.
This is one more thing to look at and you want to talk about wages. Because if you're that business owner that just taking dividends, then you're going to want to take some wages for this to make it tick and make it flow properly under the income tax act. That's going to be a question you want to talk to your accountant about is, "Do I take wages? And if I don't I need to take some wages. What does that mix going to be?" Because they can mix their income, accommodation of the two dividends or wages, maybe taking a smaller amount of wages to mitigate taxes payroll taxes, and so on.
Morgan: A lot of this is sounded really good so far, but I have to ask if there are any downsides?
Dan: I get that question once in a while. There is no downside. And that's always my answer. It's instantaneous. There is no downside to this. Zero. It's not possible to have a downside when you are setting up a structure that allows you to reduce the cost of your health and dental bills. It's only upside. And I haven't had anybody ever come back and say, "You were wrong about that. I didn't like, this didn't work or whatever." Because if they've got that corporation, they're drawing wages, they are going to save money and they are going to offset all of the costs the plan which we'll get to in a moment, but they are going to offset all of that and have a gargantuan saving on taxes because people don't necessarily add up the cost.
I don't think anybody really does that. We don't go out, and we pay a bill, and then look at, what in the end of the year when I add my marginal tax rate that actually cost me this plus tax. There is no downside. It's only upside. It's only going to reduce your costs. That's really what this does. It helps reduce the health and dental bills for that owner and their family by the process of making it all up before tax event. That is going to save the money.
Morgan: I want to say too that it seems so flexible compared. I know I'm a part of an employee plan so, it's a slightly different process. The kind of things covered are the same, but I was able to get Invisalign this year, which is something that on a traditional plan, I was never able to do or claim.
Dan: Yes, right. That's another part of that. Is there a downside? No. Only upside. And by the way, you can claim. It's wide open to claim all of those cases.
Morgan: I have mentioned since hearing about health spending accounts, I have mentioned this to a couple of small businesses that I know or have friends working for. People haven't really heard about it. Some people I know have, but it seems like a bigger percentage hasn't. Do you have any idea why it's not more common knowledge?
Dan: Well, you know people might have heard the word Flex Accounts. I find that kind of gets tossed around a lot in the insurance world, health, and dental benefits insurance world, these flex accounts. A Flex Account is a Health Spending Account. That's what it is. It's the same thing. So, it's exactly what this is. It's the employer saying to the employees. "Okay, we've got some structured benefits that you can choose from but we're also going to give you this Flex Account on top as you can claim for everything that maybe isn't covered under the base plan." At that flex is a Health Spending Account. It's maybe it's five hundred dollars or some amount that the employees can claim.
People probably have heard about it, but they just maybe haven't thought about what it actually is because it's not what they practice day in and day out and why you want to get in touch with a good administrator and understand how the plan works. But I would say, no, the Flex Account probably gets more attraction. And people think, "Oh, yeah. I had one of those are you know, I know someone who did part of their benefit plan."
Morgan: Yes. I actually have heard that term in the past. I know that we'd seen a little bit of online rumors of the CRA shutting down Health Spending Accounts. Is there any validity to this?
Dan: No. Everything subject to review at any time. Things could change. In respect of this plan, nothing has changed. In fact, it's been the opposite. It's been confirmation of the plan and I'm pretty certain when I hear that question I know what they're referring to. Because there's only been a couple of publications that have come out. I have a formal answer to one of those. But it basically talks about the single-person corporation.
And it's from occasionally confusion about that, or rumors that here and say that it's going to be shut down. But no. CRA does all sorts of audits and looks for things that aren't legitimate. This is not one of them. And in that publication, I'm thinking about that came out back in 2015. It actually confirmed the plan. What it says in there in layman's terms is a single-person corporation a single-shareholder corporation.
Well, what they confirmed is you’ve got to be incorporated. Okay, perfect. If you're not incorporated, you can't run the plan. You can't run this, that's going to be a shareholder or taxable benefit. There's no deduction. So, you’ve got to have that corporation, and you also have to have wages. It says in one employee, that one employee that shareholder, they are that one employee. So, whether you have one employee, back to that one and ten or ten thousand.
That's where the confusion comes from. It's misinterpreted, it's misread, it's misunderstood. This is all about clarity and understanding. There has been no changes in the plan. If the federal government looked at it back in all fifteen, I think, row sixteen, when the Liberals first came in and they looked at potentially taxing these plans, which was not just a small business owner. Right across the board. All benefits right across Canada.
For any employer providing health and dental because there's a lot of push back on that and they went away from that. Because I think they realized what they were up against, even their own employees have these tax-free benefits.
Morgan: Yes, and it's an actual benefit.[chuckles] You're not having to pay a bunch of yes hidden cost, deductibles.
There's a lot of providers. I wanted to get your thoughts on why you think Olympia's Health Spending Account, in particular, is a good one. What would you tell someone about that?
Dan: A lot of providers, but not a lot of necessarily good providers. Olympia has no Administration Fees. Were the only administrator that does not have an Administration Fee on the small business plans. Look at our Google reviews online. We have over a hundred and forty reviews, four-point seven ratings. That's the highest in the industry. Check out our reviews for proof of our professionalism and the services that we provide.
We're completely transparent, I love that. You don't get the confusion. This is a crystal clear program, nothing hidden in that. Our focus and our job is to educate you. So, we want to give you the information, we want you to understand, look at the guides that we have on our website explained in detail. The idea is to explain to people so they understand it and then they'll choose that plan that best suits their needs and from that administrator that the best administrator.
We got a lot of excellent feedback like that, and real-time help with live chat, top-of-the-line customer service. You talk to real people, you talk to people like me. So, partners like me, the customer service center, those points of contact, of live chat. Whether you are on the website, just looking for information, use the live chat feature. Connect with us that way or a call or email. You talk to real people in real-time. If you want to get in touch with us, we answer the phone and we're available. Pretty much sums up the difference between those that are good and those that are maybe okay.
Morgan: And I like that you mentioned transparency because all have touched on this a little bit on the intro of this episode, but it can be a little challenging bringing someone from your own company on a podcast like this. But the reason I did so was because I felt like you could really give an honest overview of this and it is a genuine good thing for small businesses. It is helpful. But with that, I'm going ask you then. How is Olympia benefits making money? So, you mentioned there are not any Administration fees. Are there hidden fees? Are there things people that are going to pop up, you know after someone signs up? Or something like that.
Dan: Good question. No hidden fees. Nothing. That transparency is critical. It's important. One of the reasons why I've always been a partner for and with Olympia Benefits is because of that transparency. There's nothing hidden. What you see, is what you get. That annual fee is the total cost the plan. Other than tax on the annual fees of, okay, we all understand, you know sales tax. Whether it's GST or HST, or otherwise. There is no fees. You pay that annual fee. That plan is set up. There's no minimum claim. You can claim whatever receipt that you have, and the maximum is going to be that overall limit, that fifteen thousand dollars we talked about.
How do we make money? We make money off that annual fee. We do a lot of plans. We do a volume of business and an annual fee. There aren't any other fees and on our website, if you're looking at the information, you'll see we talked a bit about that - the number of customers that we deal with the volume of claims. So, on our small business plans, it's that total annual fee. If there are no other hidden fees and no other costs.
Morgan: I'm actually constantly surprised at the volume of people who are doing this because I'll bring on guests and we'll do a full episode and then at the end they'll mention to me. I'll be like, "Oh, I'm actually a client of Olympia’s." I think it's so cool whenever it happens. Like, "Oh that's neat." It's all kinds of industries and all kinds of companies.
Dan: From all over the country.
Morgan: Yes, absolutely. But it's been kind of cool that that person mentioned that to me and I'll be like, "|Oh I didn't even know. That's cool."
What's the sign-up process like? Is it complicated, time-consuming?
Dan: Sign-up process is simple. It's done online. It takes about five minutes once you understand and you've got the information that you need you are ready to go. You want to sign up for the plan, you click the sign-up button. It takes you to a page where you put in your basic information, first, last name, email address and you select the plan. Maybe it's the Basic, the Plus, or the Deluxe and then you click to proceed. From there, it's just a bit about your name, your contact information, your demographics. The basic stuff, that your address and then the legal name of the business, who the employees are going to be? Is it just yourself, or maybe yourself with a spouse, and your dependents. That's it.
You pay that annual fee, which is an expense for the business. Once you do that you are then going to receive your welcome email and your receipt email. You log in with that password and ID. You reset your password. You put in your personal banking information. So that the money can flow back to you and we've claimed that tax-free reimbursement. Once you put that personal banking information in the plans sitting there in the background, idle until you file your first claim. And that whole process, five minutes.
Morgan: That's awesome. If we're going to touch on this so in our next episode. But before we close out here, I just wanted to quickly ask, if someone is listening and they have other employees besides themselves and they like to do this, is that an option for them? Could you just give a very quick overview? And then just as a reminder, we're going to do a whole episode about this.
Dan: Yes. This plan scales. Today, we've been talking about the small business owner, who does not have any employees other than him or herself and maybe a spouse as a second employee. These small business plans are capped at those two employees at annual fee pays for everything so they can have just themself or just themself and that second employ their spouse. So, if there's going to be a second employee in the small business plan, it's their spouse. And their family as dependents.
For the business that has employees, the group plan, the structures all the same. All we've talked about applies to that business, but now they can scale the plan and put employees on. No limit to the number of employees and the beautiful part about that plan for a business with employees is they can be an exacting plan. They can set up different limits if they want or the same limits. And they could come up with a budget and that plan makes it possible for them to not get into a plan that they can afford.
That group plan will serve the employer the way the small business plan and serves a small business owner but also scales out for their employees, and they have total control of the cost. They can't get into a problem or they can't afford it or affordability issues, but it also gives that freedom to the employees to use their dollars when and where they need it. Treats every one of their employees individually based on their own individual needs.
Morgan: We are going to be covering more about that in a few weeks. But if anyone does have questions, you can absolutely send them in now and I'll make sure to ask them. I did want to ask you, Dan, if you felt like there was anything I missed in covering this today? If there's anything I didn't touch on that you'd like to mention?
Dan: I don't think so. I think we got all the questions that I typically hear and I come in. If there is a question like that, then please do go to the website, have a chat, send us their question and we will answer them for you. If we haven’t answered them on this on this podcast.
Morgan: Absolutely. I'll be sure to link everything below for if anyone wants to take a closer look. And I want to thank you so much Dan for answering all my questions. That was a long list, and I know some of them were definitely a little trickier. So, thank you so much for your time.
Dan: You're very welcome. Thank you very much. I really appreciate the time.
Morgan: Thank you.
Morgan: Thank you so much for tuning into this episode of, The Small Business Mastermind. And thank you to our guest Daniel Gillis for sharing all of that helpful information. I hope this helped explain Health Spending Accounts and the benefits that they have for small businesses. If you do have any questions, please feel free to visit olympiabenefits.com and you can hop on the chat there, or check out the resources I've linked below. All right, that's all for today's episode. We have a ton of great content coming, so I'll talk to you again, very soon.