Writing off medical expenses within your corporation – HSA

The last insurance piece that I’ll speak about briefly in this post is a health spending account. While technically not insurance – it makes sense to talk about it in this series of posts.

Business owners are always trying to find ways to write off as many expenses within their corporation as possible. Medical expenses are no exception and a health spending account will allow you to achieve this.

This is how it works;

The business owner who is also an employee of the company sets up a health spending account within their corporation. A health spending account is simply a self-insured private health service plan. It can be used as a stand-alone plan or combined with other health and dental benefits you and your employees may already have. It usually is set up through a third-party administrator or trustee.

All eligible medical expenses as per section 118.2(2) of the ITA (if you’re bored you can read it) can be remitted from the employee to the corporation. The corporation will then reimburse that expense tax-free to the employee and will be able to write off all claims, fees, taxes and administration costs.

Here’s an example;

  1. An employee receives dental work that costs them $1000 that they used after personal tax dollars to pay for
  2. They remit the $1000 receipt to a third-party administrator that handles the HSA for the corporation
  3. The administrator will add a processing fee usually around 5%-10%. (Let’s say 10%)
  4. The corporation will receive an invoice for $1100
  5. That invoice will be an expense to the corporation and corporate taxes will be saved
  6. The employee will then receive the $1000 back personally tax free saving them personal tax

Total savings;

  • $1100 @ 11% (SBD in AB 2019) = $121
  • $1000 @ 48% (Top tax rate in AB 2019) = $480
  • Total savings = $601

As you can see this can be an effective way to reduce taxes for individuals with eligible medical expenses.

I will encourage you to schedule a free 30-minute strategy session with me.

What this session will highlight is:

  1. If you have unforeseen liabilities threatening your future
  2. How you can be more efficient with your finances and save on taxes
  3. How you can receive maximum after-tax value from your company if/when you sell
  4. How you can pass down your business to your family without sacrificing your goals
  5. If your planning has something missing from it

So please schedule a session and I look forward to exploring how we can help you.