If you own your own business (or have amazing influence over your employer) you'll want to read on.
We underestimate the high cost of health and dental expenses. Although our provincial Medical Service Plan (MSP) provides a great foundation, that's where the other expenses begin and there are only three ways to pay.
The first way is through traditional health insurance plans. You and/or your employer pay a monthly premium covering a defined list of medical and dental expenses for you and your family. There are coverage limits and you will probably end up paying for items like braces for the children, eyeglasses or chiropractic treatments. If you claim far less than the premiums you pay, it's your loss and the plan is designed in favour of the insurance company.
The second way to pay is with cash. It's simple, there's no paperwork and it will actually cost you up to 77.6 per cent more than you think! You see, you need to earn the money and pay tax on it before you pay the bill and the highest marginal tax rate in this province is 43.7 per cent. In order to pay $1,000 in medical or dental expenses, you need to earn up to $1,776. Not fun!
Private Health Services Plans (PHSPs) offer an attractive third option.
In 1988, Canada Revenue Agency (CRA) stated that if your medical and dental benefits are administered through an independent administrator, they can be 100 per cent tax deductible to your company without being a taxable benefit to you or employees of the company.
If you have an incorporated business or sole proprietorship of any size, you qualify.
Here's how it works: 1. You pay your health or dental expenses directly.
2. Your company sends the PHSP provider a claim form with the receipts and a cheque to cover the expenses plus an administrative fee (usually around 10 per cent).
3. The PHSP provider provides you with a tax-free reimbursement of the expense.
4. The company gets a tax-deductible receipt for the full expense and the administrative fee.
What's covered? Any product, procedure or service you may receive from a medical professional. This includes a broad range of health care professionals who are authorized to practice in the province and certified to the practitioners governing body. The list of covered expenses is extensive and you only pay for what you use.
There is a downside. Although a PHSP tax effectively reimburses most medical and dental expenses, catastrophic medical events are not included. You need to make sure that you have "stop-loss" insurance that covers critical illness, long term disability and out of province medical expenses.
These plans are worth looking into if you're self-employed. They require a bit of planning and you should review the options with a financial advisor experienced in setting these up.
The opinions expressed are those of Richard Vetter, BA, CFP, CLU, ChFC.
Vetter is a certified financial planner and owner of WealthSmart Financial Group in Richmond (www.wealthsmart.ca).
