Let’s take a look at what you’ve been missing.
Business Expense vs Personal Expense
Let’s take a quick look at your income tax savings when you pay for an expense through your business as opposed to personally. Your marginal tax rate in Ontario with a salary of $100,000 is 43.41%. At this rate, for every $1.78 in salary, approximately $0.78 or 43.41% is paid to the federal and provincial government in personal income tax.
Assume the cost of your office rent is $1,000 a month. Paying for rent as a personal expense would cost your business approximately $1,780. You would earn $1,780, pay the government tax of $780 (43.41%), and then have $1,000 after tax to pay your rent.
Fortunately, you can deduct the cost of your rent and have your business pay for the expense. For every $1,000, you and your business will save approximately $780. Over the course of a year, the savings add up substantially.
Do you have personal expenses that should be a business expense?
Reduce your taxable income by nearly 50%
According to a CRA Interpretation Bulletin IT339R2 and section 248(1) in Canada’ Income Tax Act, a Private Health Services Plan is a contract of insurance in respect of medical expenses. Essentially, it is a tax planning vehicle for you and your business.
To simplify, all of your personal medical expenses (including your dependents), can and should be paid for through your business using a qualified Private Health Services Plan. Carrying over the math from the rent example, you can save up to 43% for every dollar you spend on your personal medical expenses. For top earners in Canada with a marginal tax rate approaching 50%, the savings from this tax vehicle can be significant.
The Private Health Services Plan, also known as a Health Spending Account, has been adopted by Canada’s One Person Business community as a viable and cost-effective alternative to traditional insurance. With no premiums, 100% coverage, and an easy to use format, the Health Spending Account is truly one of Canada’s best kept and underused tax secret.
