The Architype Benefits Cost Plus Plan
- As with all approved benefits plans, money that runs through these plans for the benefit of employees (and management too of course) is not subject to the normal payroll tax deductions like EI, CPP, WCB etc. This saves you about 20% additional cost on your compensation package. So the advantage here is that your health and dental expenses, including the Cost Plus fees, are all treated as normal business expenses.
- Normally, if you have your business pay for your personal health and dental expenses, you are obliged to pay income tax on the expenses the business paid. This is a CRA (Revenue Canada) rule, treating the expense as part of your wages. But if you run your expense through an approved third party benefits plan, you avoid the income tax as well as the above payroll taxes.
- Employees who receive benefits payouts for their claims receive that money free of tax – so that part of your compensation / wages is received completely tax free.
With these tax advantages, a Cost Plus plan is a highly advantageous way to pay yourself, and is fully acceptable to CRA. The net savings from payroll tax and income tax add up to a significant dollars.
By comparison, if you pay your own medical and dental expenses, and then deduct them on your income tax, you get caught 3 different ways by CRA.
- Your claim amount is reduced by the ‘default claim’ the system makes for you, and your expenses only count if you have costs in excess of the default claim. So you lose there.
- Your claim amount, if it adds up to anything at all, is paid at the minimum tax level, currently 15%, even if you are at the 42% level. So you lose there even if you did have a claimable amount.
- Your claim is subject to a maximum, or ceiling amount. If you have big cost in a given year, it gets cut off at the maximum allowed amount. So you lose again.
Those are big incentives to find a better way to manage health and dental claims. This can also be added as an additional feature on top of your company’s regular health and dental plan
Are You Eligible for a Cost Plus plan?
Under current guidelines from CRA, you need to be an incorporated business to employ a Cost Plus plan.
Additionally, if you have any employees in your business, they need to have a given level of access to the plan. There is a requirement that everyone be treated fairly, and to a degree equally. There is however an allowance for ‘different levels’ of equality. So you can have different classes of employees in your plan. It’s best if you consult a professional benefits advisor on how to set this up. If it’s not done correctly, you could end up with CRA deeming your plan a shareholder benefit that doesn’t qualify, and the deduction for the whole works could be disallowed.
What are the Costs to Set This Up?
There is normally a one-time setup fee for this. If you are already a client of Architype Benefits, this fee is normally waived.
From that point, there is a user fee of 10% of the claim submitted. Architype Benefits has a minimum fee for the use of that plan, and also a maximum fee limit, so large claims don’t get assessed with a fee that is unrealistic. The fee is of course only assessed if you use the plan. If you don’t use the plan in a given year, there is no fee at all. The plan is still in place, waiting for your next use, whenever that may be.
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