Self Employed Sole Proprietor

 

A Health Care Spending Account is a “private health services plan” (PHSP) defined under the Income Tax Act’s Interpretation Bulletin IT-339R2.  We can set up a plan that will enable you to use your family’s health and dental expenses as a fully deductible business expense.  So rather than pay health and dental premiums, you only pay for what you actually need.  In addition, if you already have extended Health insurance, you can still use this program to cover portions of expenses not covered by your existing plans.

But, What About the Medical Expense Tax Credit on My Personal Tax Return? 

There is a common misconception regarding the deduction of health and dental costs on personal tax returns.  While it is true there is a “Medical Expense Tax Credit” available on your personal tax return, it is also very true that this rarely creates any form of significant tax savings. 

The Medical Expense Tax Credit is based on income and the actual dollar amount of medical and dental expenses incurred in a given year.  However, there is a minimum threshold which must be reached before any tax credit occurs.  In fact, nearly $2,000 for high income earners.  This means that business owners in a high marginal tax rate who spend less than $2,000 each year will not receive any tax breaks at all.  If you spend more than $2,000 annually, you will receive approximately 25% of whatever exceeds the threshold. 

Using a Health Spending Account, you can deduct 100% of those costs right from the first dollar. 

How Much in Expenses Can I Claim? 

Annual deduction limits for unincorporated businesses are set by the government and restricted to $1,500 per year for family members over the age of 18, and $750 per year for members under 18 years of age – combined into a family total.  For example, a family consisting of a husband, wife and two children under the age of 18 would be allowed $4,500 per year.  ($1,500 + $1,500 + $750 + $750) 

What does it cover? 

It covers everything that is covered by a traditional insurance company health and dental plan and a whole lot more.  All of this can be found under Section 118.2 (2) of the Income Tax Act, however, if you want to see a partial list of eligible medical and dental expenses then click here. 

What are the advantages over a traditional insurance plan?  

1. No health questionnaire or medical required.
2. There are no pre-existing condition exclusions.  Existing medications are eligible.
3. No policy deductibles whatsoever.
4. No waiting periods before coverage commences.  You get immediate coverage.
5. No co-payments, which mean you get to claim 100% of all eligible expenses.
6. No monthly premiums with a Preferred Health Services Plan, just an administrative fee of 10% on eligible claims when they occur throughout the policy year.
7. No initial set-up fees for the company and each employee.  (not an advantage over traditional insurance but some competitor PHSP plans have this feature)
8. No annual premium rate increases under a PHSP.
9. No age limitation.
10. See actual side-by-side industry comparison. 
 

What if I have a catastrophic disease, illness or injury? 

This could happen and that’s why we have an arrangement with a large international insurance company for an Excess Medical Health Insurance Policy. The company we use is unique in a number of different ways: 

1. The annual deductible is $1,500 per person.
2. No medical questionnaire is required.
3. No pre-existing condition exclusions clause.
4. Expenses for hospital accommodation, nursing services, prescription drugs, ambulance and durable equipment are covered at 100% up to $25,000 for each expense per person per accident, sickness or disease.
5. Annual maximum of $125,000 for each accident, sickness or disease.
6. Lifetime maximum of $250,000 for each accident, sickness or disease.
7. Chiropractors, Osteopaths, Chiropodists or Podiatrists, Licensed Masseurs, Speech Therapists, Psychologists and Physiotherapists are each covered up to $2,500 annually per accident, sickness or disease subject to a maximum charge of $25 per treatment.
8. Emergency Travel Insurance of $1,000,000 per person is included with no pre-existing conditions exclusion and no medical questionnaire is required.  Our travel insurance has no deductibles and covers an unlimited number of trips per year up to 45 days per trip.
9. The monthly premiums for our Excess Medical Health Insurance Policy are $7.34 single, $14.68 couple and $19.97 family.
10. Coverage is available up to the age of 65.
 

What to watch out for with other Catastrophic Insurance Policies? 

1. Insurance companies that have a pre-existing conditions exclusion clause.
2. Companies with high annual deductibles, eg. $2,500 or $5,000 per insured.
3. Emergency Travel insurance with a pre-existing conditions clause.
4. Companies that make Life and Disability benefits mandatory with their Health Spending Account.
5. Agents with very limited Preferred Health Services Plan knowledge.
 

How do I enroll? 

1. Complete both sides of the Health Care Savings Plan application.
2. Complete the top three sections on Page 1.
3. Under PROTECTION and ANNUAL PREMIUM transfer details from the worksheets on the reverse side – Page 2 – of the application.
4. Complete the FAMILY LIMIT SECTION.  Do not complete the Estimated Annual Expenses.
5. Complete the PAYMENT METHOD / AUTHORIZATION at the bottom of Page 1.  If you choose to pay by cheque make the AXA premium out to Vital Health Savings Plan.  This cheque will be processed immediately upon receipt of your application.  The Void cheque allows for reimbursement of PHSP expenses directly into your personal bank account.
6. Be sure to sign and date your application form.
7. Call us at (800) 433-5307 if you have any questions.
 

What happens next? 

For the Vital Health Care Preferred Health Services Plan, a Welcome Kit will be prepared and mailed to you.  There is nothing to pay at this point. 

Now, you’re ready to send in claims using the Claim Form in your Welcome Kit. 

Should I Incorporate?  What are the HCSA Advantages? 

This could be a good idea.  The cost to incorporate is minimal when compared to the tax savings offered when you have high medical or dental expenses. 

Unincorporated sole proprietors have yearly limits based on each member in the family.  If you were incorporated you could have a family limit of $10,000 or more depending on your normal annual earnings and the nature of your health expenses.  For example, a special needs child might qualify you for a much higher deductible limit. 

Gary White Insurance

Tel: (800) 433-5307 Bus. Cell: (416) 768-4279
Email: info@garywhiteinsurance.com