How a Health Spending Account will save your business money
I want to share a conversation that I had with a friend of mine, who for the sake of this article we’ll name Suzanne. Suzanne is a business owner who founded and successfully runs her own company in Kanata. She has been looking for more ways to be effective with her cash flow and tax dollars. Sitting over coffee, I told her about HealthPlus.
HealthPlus, which is more commonly known as a Health Spending Account (HSA), is a simple way for business owners to save money on their income tax. It has been around since 2003 and is one of Canada’s best kept secrets for small and medium sized business owners – it converts out of pocket, after tax medical expenses, into a before tax business expense.
To make it easier to understand, I’ll use the same example that I showed to Suzanne. We will use a total cost of a $1,000 out of pocket medical expense. Suzanne lives in Ontario, and earns $150,000 per year, with a marginal tax rate of 46.41%, the total cost to her business for a $1,000 medical bill is $1,866. In other words, Suzanne would need to earn $1,866 gross to pay for a $1,000 medical bill because an additional 53.59% or $866 is required to pay the income tax. Compare that to using HealthPlus. The $1,000 plus the administration fee (10%) and income tax are 100% deductible as a business expense. There are no personal tax consequences to Suzanne. Using this example, the approximate savings to Suzanne are $651 on $1,000. Now Suzanne wears contacts and has two kids about to need braces so you do the math! https://healthplusplan.ca/the-benefits/
While the above example and discussion are simplified, there are tremendous benefits and advantages for small to medium sized business owners in Canada who use HealthPlus. Sign up Today! Or call us at 613-226-1964 and one of our Advisors can help you.
Covering the expenses – the old way
You pay yourself additional salary of $1,866
You pay personal income taxes of $866
After tax, this leaves you with $1,000 to pay the expenses
Your medical expense tax credits are worth $0 incurred in medical expenses
Covering the expenses – the HealthPlus way
Under HealthPlus, you will remit $1,215 (the medical expenses plus admin fee and taxes)
You will receive back $1000 to pay expenses
This amount is non-taxable under CRA rules
The entire $1,215 is also a deductible business expense
Your Estimated Savings
Using HealthPlus you could save
$651 or 35%…every year