If you are a Business Owner or Executive and your Company has a benefit plan, your Company could pay for your uninsured Medical or Dental Expenses.

This includes things like as Orthodontics, Major Dental, Laser Eye Surgery and other items that may not be covered under your benefit plan, as well as expenses in excess of plan limits.

This may also include excess Paramedical coverage (i.e. Chiropractor, Massage, Physiotherapy, Speech Therapy, Psychologist, etc), Glasses or Contact Lenses, and many other Medical and Dental items considered eligible under the Income Tax Act.

Cost plus is a valuable element of most employee benefit plans, as it can provide your key personnel with a tax-free benefit, using pre-tax business dollars. However, many people still don’t know that their existing plan may include this benefit already.

Any legitimate Medical or Dental expense, as defined by CRA which is limited or not covered by your plan, may be eligible. Common examples are Paramedical amounts (Chiropractor, Massage, Physiotherapy, Speech Therapy, Psychologist, etc) in excess of the benefit plan maximums, Major Dental or Orthodontic coverage, Laser Eye Surgery, etc.  There is no additional cost to having the Cost Plus benefit, other than the administrative fees* and taxes incurred when a claim is made.  Claims are not reflected in the group’s experience, so it doesn’t impact the pricing of your benefit plan.

Example:

The child of an executive requires $3,000 of Orthodontic Treatment.  The Benefit Plan covers Basic Dental coverage only.

Assumptions:
  • Marginal tax rate is 43%
  • Cost Plus claim would cost $3,000 plus a 10% administration fee* ($300) and applicable taxes for a total of $3,300 (+ taxes)
  • Corporate tax rate for this business is 15%
Without Cost Plus:
  • Executive must earn $5,300 to have $3,000 after tax dollars to pay the expense
With Cost Plus:
  • Business pays the Cost Plus claim with $3,300 (+ taxes) in corporate funds
  • $3,300 is tax deductible for the business
  • Executive receives $3,000 in non-taxable benefits
  • With a 15% tax rate the net cost to the business after tax is only $2,805
The Result:

With Cost Plus coverage, the cost to the executive is reduced to $2,805 and is paid for by the business.  The expense has been paid for in a tax effective manner and the executive has received $3,000 in tax-free benefits.

* Administrative fees range from 10 to 15% and minimums and maximums may apply from different insurers.

Owners/Shareholders should consult their accountant or tax advisor for more details on how this benefit may apply to them. Taxation rules and interpretations are constantly changing and this example should not be taken as tax advice.

Note:

  1. Effective January 1, 2013 CRA views trading bonuses for flex credits (HSA) as taxable benefits
  2. CRA may deem that the application of cost-plus for shareholders only may result in a taxable benefit and negate the benefits of a cost plus claim
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