Prudent financial planning has never been more important than it is now. In our recent Integrated Planning video series, WealthCo’s Vice President of Insurance and Estate Planning, Jeff Dyck, takes us through the integrated approach to financial planning. We’ve included a synopsis below.
Every single business owner that is incorporated should have a healthcare spending account. Period, full stop.
What is a healthcare spending account? Established under the Income Tax Act in Canada, a healthcare spending account allows an employer to use pre-tax dollars to reimburse its employees for eligible medical expenses on a tax-free basis. Healthcare spending accounts act as either a great way to introduce a group benefits plan to your company or can be used to supplement the shortfalls of an existing group benefits plan. In today’s competitive labour market, every advantage an employer can use to assist with employee retention, is a win.
How Do Healthcare Spending Accounts Work?
Healthcare spending accounts reimburse employees for eligible medical expenses up to a defined limit. The employer funds the healthcare spending account with pre-tax dollars, and then the employee can access those funds as laid out in the account guidelines.
Say an employee needs new glasses, and they can access up to $500 per year for glasses through their healthcare spending account. If they select a pair of glasses worth $700, $500 of that spend would be reimbursed and they would not pay tax on that reimbursement. And given that the employer has funded the account with pre-tax dollars, the business owner too avoids paying taxes.
Healthcare spending accounts are also highly flexible; business owners can adjust coverage amounts based on each employee's class. This may involve introducing a different benefit level for your executive employees vs middle management vs entry-level staff.
The Canada Revenue Agency provides a full list of eligible healthcare spending account expenses on their website.
How Can Healthcare Spending Accounts Save Business Owners Money?
Healthcare spending accounts can be beneficial for entrepreneurs without an employee base, as all incorporated businesses qualify. This is especially helpful for smaller companies, those who have perhaps just a single employee or engage contract workers, may be ineligible for group healthcare plans, so this provides a tremendous alternative to them simply paying for their medical expenses out of pocket. Especially when your child needs $10,000 worth of braces. Rather, this $10,000 medical expense can be paid through the healthcare spending account, provided it meets the eligibility requirements as defined by the plan.
The Income Tax Act stipulates a maximum amount of medical expense tax credit that is available to individuals ($2,400 or 3% of your income, whichever is lesser). A healthcare spending account can help in the event that an individual is unable to use the full power of that medical expense tax credit and is in need of an alternate way to fund surplus medical costs.
Where Can I Get More Information on Healthcare Spending Accounts?
Whether you are a business owner looking to supplement your existing group benefits plan or whether you are looking to start a benefits plan on a lower-level basis, a healthcare spending account is well worth considering. To learn more connect with your Integrated Advisory advisor or your CPA on next steps.
The Integrated Advisory Network consists of progressive CPA firms, along with best-in-class professional advisors, service, and product specialists, who work together to deliver an elevated and holistic client experience. One that optimizes both their personal and professional lives with an integrated financial strategy designed to help their clients reach their goals. Reach out to your Integrated Advisory accountant if you have any questions or want to have a deeper conversation about your financial plan.