Entrepreneurship & Small Business

Tax advantageous for company to pay all Health costs to owners?

  • Last Updated:
  • Dec 12th, 2017 6:58 am
[OP]
Deal Addict
Apr 21, 2014
1153 posts
290 upvotes
Alberta

Tax advantageous for company to pay all Health costs to owners?

Hey all, I'm posting this for a friend of mine who owns a small business. His partner told him that it's tax advantageous for the company to pay all Health Care costs to owners that their plan doesn't cover? So if the plan covers only $500 of dental, and the bill is $2000, there are benefits if the company pays the difference on the owner's behalf vs the owner paying it themselves and then treats that amount as a shareholder loan on the company's books.
4 replies
Deal Guru
Aug 2, 2010
11028 posts
2268 upvotes
His partner does not know what he is talking about. A shareholder loan is a loan regardless of what it is for. Also, if a shareholder loan stays on the books of the company for two consecutive years it is then treated as income to the shareholder. Therefore nothing has been achieved in terms of tax savings. The policy behind this rule is to avoid people borrowing money from their company ad infinitum and never having to ever pay tax on it.

What your company can do is use a Private Health Services Plan (PHSP). The mechanism is as follows: The company pays the health and dental claims of the shareholders and/or employees and receives a tax deduction for 100% of those claims and the recipients of the claims do not pay tax on the claim. The fine print on this is that the claim has to be submitted through a PHSP facilitator and they charge a fee for doing so. There is no other way to do this except in this manner. The least expensive such facilitator that I know of is Brock Health Administration Ltd. (https://www.brockhealth.ca/). There is no cost to submit claims through them and no monthly fees. The fee is simply 5% of whatever claim is submitted. That is definitely worth the tax savings.

The only issue here to be concerned about is with multiple shareholders one wants to make sure that over time the benefits accruing to each shareholder is about even or some may squawk that others are getting more benefits because they had higher health claims. One could take care of this in other ways though, such as increasing salarly to those disadvantaged, providing perks, higher car allowance and making sure the net result evens out amongst the various owners.
[OP]
Deal Addict
Apr 21, 2014
1153 posts
290 upvotes
Alberta
eonibm wrote:
Dec 5th, 2017 7:05 pm
His partner does not know what he is talking about. A shareholder loan is a loan regardless of what it is for. Also, if a shareholder loan stays on the books of the company for two consecutive years it is then treated as income to the shareholder. Therefore nothing has been achieved in terms of tax savings. The policy behind this rule is to avoid people borrowing money from their company ad infinitum and never having to ever pay tax on it.

What your company can do is use a Private Health Services Plan (PHSP). The mechanism is as follows: The company pays the health and dental claims of the shareholders and/or employees and receives a tax deduction for 100% of those claims and the recipients of the claims do not pay tax on the claim. The fine print on this is that the claim has to be submitted through a PHSP facilitator and they charge a fee for doing so. There is no other way to do this except in this manner. The least expensive such facilitator that I know of is Brock Health Administration Ltd. (https://www.brockhealth.ca/). There is no cost to submit claims through them and no monthly fees. The fee is simply 5% of whatever claim is submitted. That is definitely worth the tax savings.

The only issue here to be concerned about is with multiple shareholders one wants to make sure that over time the benefits accruing to each shareholder is about even or some may squawk that others are getting more benefits because they had higher health claims. One could take care of this in other ways though, such as increasing salarly to those disadvantaged, providing perks, higher car allowance and making sure the net result evens out amongst the various owners.
Oh wow what a great response!! thank you. Just to clarify, it's a 100% deduction against taxes owing ? or is it just tax deductible (which means savings is corporate tax rate times the expense).
Deal Guru
Aug 2, 2010
11028 posts
2268 upvotes
abc123yyz wrote:
Dec 5th, 2017 7:35 pm
Oh wow what a great response!! thank you. Just to clarify, it's a 100% deduction against taxes owing ? or is it just tax deductible (which means savings is corporate tax rate times the expense).
Not against taxes owing, LOL. When is that EVER the case with any expense? Please check the website I referenced. All the answers are there (and more).
Sr. Member
Feb 25, 2007
933 posts
386 upvotes
Ottawa
Great answer, only would add that a PHSP only works for *employees*, not for people who are only *shareholders* (i.e. paid only with dividends). So to take advantage of this, as I do, make sure the owners receive at least a token salary.

There is also a requirement that the same "coverage" (ie. annual limit) needs to be the same for all members of the same class of employee. In a closely-held business with a small number of employees (owner-employees and others) this is not a big deal, but if you have more employees, it is meant to eliminate discrimination based on the individual. So no "John can get $5000 reimbursed but Tony only $500" and especially not "Marcy, co-owner and employed 2hrs/week as part-time bookkeeper can get $5000 while Edith, full-time bookkeeper but not an owner, only $500."

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