How Small Business in Canada Can Take Advantage Of Health Spending Accounts

 A Health Spending Account (HSA) is an affordable and unique way for Canadian small business owners to reduce their medical expenses. Please keep reading if you’re wondering “How does a Health Spending Account work for small business?”

What’s a Health Spending Account?

A HSA is an affordable alternative to conventional health insurance. In simple terms, health & dental benefits provided via this plan are 100 percent tax deductible to the employer and obtained 100 percent tax free by the employee. There’re no premiums, deductibles, hidden fees, or complicated policies. 

How Does A HSA work?

A HSA can be reckoned from two different point of views: as a small business owner with workforce (arm’s length employees) where you’re giving a worker benefit or as an incorporated individual where you’re paying for your personal medical expenditures. For an explanation of each perspective see below.

A business with arm’s length employees:

Do you own a small business with staff? A HSA makes for an excellent employee benefit package. It’s a flexible and affordable alternative to conventional health insurance. Employers get value from a Health Spending Account as they get cost control with their benefits (there’re no premiums with a Health Spending Account). Furthermore, a Health Spending Account is easy to execute, administer, and the plan is modifiable. Employees choose an HSA as it’s a tax free benefit, coverage is comprehensive, and the benefits are flexible. 

For a business with no arm’s length employees:

Are you an incorporated individual? A HSA turns your after-tax personal medical expenditures into a before-tax business deduction. 

Fundamentally, you get to withdraw cash from your corporation tax free to pay for your personal medical expenditures. Listed below is a case study to understand the cost-savings of HSA:

Being a business owner, you get earning from your company. In Canada, there’s a progressive tax structure. That means the more you earn, the more the government takes in the form of tax. Your income tax rate will have a drastic impact on the total cost of your medical expenditures. Your marginal tax rate is the amalgamation of your provincial & federal tax rate. 

For instance: if you earn $100,000 in Alberta, your marginal tax rate is 36 percent. You’d have to gross approximately $1.60 to bring home $1.00 after-tax. $0.60 of your gross $1.60 would be taxed, leaving you with $1.00 after-tax. Remember, medical expenses are an after tax event. 

Key takeaway for a small business:

HSAs are used by small firms & incorporated individuals to control their medical expenses and obtain more flexible coverage than a conventional health insurance plan.For more information visit our website or call us at 905-821-8224 .