It’s tax time and every year there are tax tips intended to help save you money on taxes.
If you had to choose between 2 tax saving options which would you choose?
- One that will save you $87 on a $2500 expense.
- One that will save you $1000 on the same $2500 expense.
This year, on the CBC website (CBC.ca), they have an updated article “9 tax tips that will save you money”.
The tip that I want to talk about is #9 on their list and is about medical expenses. (See the full article HERE)
9. Be sure to claim all eligible medical expenses.
Tax experts say missed medical expenses are one of the most overlooked tax breaks.
Many people don’t bother to add everything up because of the income-related threshold: only expenses that exceed the lesser of $2,152 or three per cent of net income can be claimed.
But what they don’t realize is that there’s a long list of expenses that qualify, so it’s often not too difficult to reach that threshold.
Travel expenses even qualify when people need to go more than 40 kilometres (one way) to get medical treatment that isn’t available closer to home.
Medical expenses can be claimed by either spouse or partner.
I am always amazed that they completely overlook the advice that applies to the Canadian business owner or self employed professional; and that is the “Private Health Services Plan” (PHSP) otherwise known as a “Health Spending Account” (HSA).
What they are referring to in the second paragraph is the “Medical Expense Tax Credit” (METC). This is a personal “Tax Credit”. Basically, you will gather up all your health expense receipts and give them to your accountant hoping somehow, you will pay less in taxes as a result. The reality is that unless your total health expenses are over $2152 or 3% of your income you will only get a tax credit on the OVERAGE. And even then, the “tax credit” will be at the lowest Provincial tax rate which is usually around 25%. What does that mean in dollars saved?
Health expense Total: $$2500
Amount over $2152 that you can claim: $348
Tax Credit (@25%): $87
Yay! You reduce your payable taxes by $87 on the $348 amount that is over the $2152 threshold.
If you are a Canadian business owner or self employed professional you have a much better option to save you significantly more in taxes.
When you set up your PHSP or HSA through Canada Smart Plan for your business all your health expenses become a deductible expense for your business and a tax free benefit for you
Assumption in this example: You are in a 35% Tax Bracket.
Health Expense amount: $2500
The amount you need to earn to pay that expense (approx): $3750
The amount of taxes you save by using this plan: $1250
The additional cost to your business $250 (10% admin fee charged to your business on claims processed)
Net saving in personal taxes: $1000
Now, which tax savings would you rather have?
- $87 by using the METC? Or,
- $1000 using Canada Smart Plan?
Canada Smart Plan is absolutely FREE to set up and there are no “maintenance fees” ever. When you use it, your business is charged the 10% admin fee in order to save you the 30-40% in personal taxes. You ALWAYS save significantly more than it costs you.
If you are a Canadian business owner or self employed professional you absolutely NEED to have this in place.
Without it you are just giving this money away to the tax man and somehow, I don’t think you really want to do that, do you?
Get registered today!