Tax Advantages of the Architype Benefits Health and Dental Plan
Tax Advantage 1 - 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.
Tax Advantage 2 - 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 CCRA (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.
Tax Advantage 3 - 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.
Between the tax advantages, an individual or group 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 advantage.
Also note, 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.