Medical benefits can be a great way to provide additional non-taxable compensation to your employees. There are many different plans available to even small and medium businesses. Whether you’ve got a health spending account or a medical insurance plan (or a combination of the two), there is a process to ensure that these medical expenses are deductible for the corporation and non-taxable for your employees.
Here are some of the typical medical benefit mistakes made by Canadian entrepreneurs that I’ve seen:
- Paying the medical expense directly from the company bank account.
- Paying your dentist or chiropractor from your company bank account may seem like an efficient way to create a medical benefit plan. Unfortunately, Canada Revenue Agency would consider these expenses personal in nature and not deductible on your corporate tax return. Your medical expenses need to run through some sort of third-party insurance provider so that you can get that write off.
- Paying yourself only a dividend.
- For many owner-managers, the rising CPP rates have made a dividend only compensation strategy very tempting. But guess what! If you’re not paying yourself some sort of wage, you’re not technically an employee of your company. It’s pretty difficult to access these non-taxable employee benefits when you are NOT an employee. The message here: make sure you’ve got at least SOMETHING to report on a T4 as a wage or your medical benefits will not qualify as a corporate deduction for tax purposes.
- Not implementing a medical benefits plan for your employees.
- A common misconception is that you need several staff in order for a medical plan to be feasible. It is possible to implement a medical plan if there is only one employee… that one employee can even be the owner/manager. A health spending plan can be a great solution to pay for those medical expenses with company dollars.
If you are interested in expensing your medical benefits through your corporation or offering your employees an added tax-free perk, talk to a qualified, experienced benefits consultant. Talk to your trusted Chartered Professional Accountant to further ensure these medical benefits are treated properly for tax purposes.
Are you looking for a qualified, experienced Chartered Professional Accountant? Give us a call. We’re happy to help.
Angela Richardson is a Chartered Professional Accountant (CPA, CGA) with more than 17 years experience working in public practice with small to medium sized businesses. While financial statements and tax returns are part of the occupation, consulting and assisting clients to achieve their entrepreneurial dreams is her true passion.