Specialized Benefits

With all the media attention on swine flu recently, among other issues that make us believe that the world is coming to an end – I thought I would discuss a topic that I have some experience in – travel insurance.

Travel agents make travel insurance very convenient to purchase when you book your trip. However, like mortgage insurance from a bank – this is not always the best type of coverage for you.

I can across this article that illustrates the importance of purchasing an insurance policy from someone who is versed in this arena:

http://www.cbc.ca/money/moneytalks/2009/05/ellen_roseman_read_the_fine_pr.html

As the article relates – there are policies out there for people who do have pre-exisiting conditions – they are harder to find and cost a little more – but for these people it is the best value for your dollar.

For those who are in good health – travel insurance is very inexpensive – typically less than $2 per day for singles and about $5 per day for families. These numbers pale in comparison to the potential tens of thousands that a single claim can generate. If you have coverage through your employer but are travelling for an extended period of time – you can “top-up” you coverage very easily.

If you are traveling soon – be sure to look before you leap. And as the commentor below the article says – you wouldn’t book a trip through an insurance agent so why would you purchase insurance from a travel agent?

Have a good one!

Rhett

    Seeing how yesterday was the deadline for most Canadians to file their taxes, I guess I should finish up my discussion on Private Health Service Plans (PHSPs) and how they can be beneficial as an alternative to employee group plans.

   I have discussed how a PHSP can be beneficial for a sole proprietor/one man incorportated company – some of those same benefits can be translated to a small business with employees.

   With a group plan you pay premiums every month – even if your employees are not using the plan. Also your premiums increase based on the claims experience with your group – generally all it takes is one employee to make significant claims to cause an increase for small groups. The other thing to consider for small group plans is that you generally will not have enough staff to cover major dental expenses such as crowns, caps, bridges, dentures, and orthodontia.

   The advantages with a PHSP is that you set the limits as to how much each category of employee is allowed – say $1500/year, the owner can (and typically does) have a maximum of $5000 or more. You can create dozens of different categories based on family size, employment status, employment position (F/T or P/T), seniority etc. This employee is allowed to spend these dollars on whatever medical and dental expenses they want – even MRI’s, laser eye surgery, and even their own individual Blue Cross plan(or similar).

   The owner then know exactly what the health costs will be at a maximum – if the full amounts are not used by the employees – they can be rolled over (for one year only) or they are lost. This way if there is significant claim experience – the costs will not increase. Plus the unused dollars can be eventually returned to the owner!

    It should be mentioned that there are optional programs available for prescription drug coverage, hospital, ambulance, accidental dental, travel, life and disability insurance – for the “what ifs” – but for everything else you can use the PHSP.

   Finally, just like premiums for your health and dental portion of your group plan – any dollars that are used by the employees are tax dedutible for the owner and the benefits are received tax free by the employee.

   In closing a PHSP can offer small business owners an opportunity to offer their employees a benefits package without having to worry about the costs getting out of control – plus the employees can use the dollars on items that are actually going to use.

   Have a great weekend everyone – looks like spring has finally arrived in Edmonton!

  Rhett

Once again time goes by in a blink of an eye!

Continuing from my previous discussion – PHSA’s can be very beneficial for the one person company to a company with multiple employees…..

For the one person company(incorporated or unincorporated), the advantage of a PHSA is firstly your cash flow; instead of paying premiums to an insurance company month after month, whether you or your family uses the plan or not – with a PHSA you only pay for the plan when you use it. If you are someone who goes to the dentist once a year, rarely gets a prescription, and has little to no other expenses – why pay $50-$100 per month for an insurance plan? Sure the premiums are tax deductible, but you only get a percentage of that back. Save your money and pay for the dental visit when you need it – and deduct that just like you would premiums.

     The other advantage is that you pay for these expense with pre-tax dollars as opposed to after tax dollars. Take a $1000 dental bill: if you had no plan you would have to pay yourself about $1500 (depending on tax bracket) in order to account for CPP, EI, and payroll tax so that you have $1000 left to pay the dentist. With a PHSA – you would simply pay $1100 out of your company account – saving you about $400!

    Another great example I find is for major dental work such as crowns, orthodontia, bridges and implants – most individual plans do not cover this type of work, or if they do – you have to pay into the plan for 2 years before you can claim for your son’s/daughter’s braces. With a PHSA you can claim these expenses on day 1 of your coverage and therfore fully deduct this expense from your business income.

    Finally, this plan is better than the medical tax credit that you have from the government for a couple of reasons – 1. With the gov’t tax credit you have to pay a deductible of 3% of your income (max. of $1925) before you are allowed to claim any expenses. This is where I find a lot of clients get confused – they tell me “My accoutant already writes off my medical expenses – why would I want a PHSA?” True, your accountant is writing it off – but the question is – are you getting any sort of credit? If you earn $50k per year – you would have to pay $1500 in medical and dental expenses to cover the deductible – if you have $1200 in expenses – sure you accountant is “writing them off” but you will receive no tax credit. With a PHSA you get a credit from the 1st dollar that you claim!

2. Once you hit the deductible – you only get a 15% federal credit and a 10% provincial credit (Alberta) – so a total of 25%. A PHSA allows you to deduct 100% of the cost of your medical and dental expenses.

Take an example of a family who has child going in for orthodontia work – assume they are incorporated, report an earned income of $60k, and the ortho bill is $3000 per year.

Under the Medical tax credit, the family would have to pay $1800 (3% of 60k) before getting a credit – then they would get a 25% credit on the remaining $1200 = $300 tax credit – at the 36% tax bracket (26% fed. 10% prov.) this means a total tax savings of $108 – WOOOHOOO! (sarcasm)

With a PHSA, you would deduct the full $3300 from you business and based on a 36% tax bracket – this would translate to a $1188 tax savings! No sarcasm here – that’s a great deal!

Next part will show how this plan can work as an employee benefits plan.

Happy Easter!

Rhett

It seemed like only a short while ago I was closing 2008 and welcoming in 2009 with some friends of mine – hard to believe how fast time flies. It is like the expression – time flies: you better be the pilot!

With the closing of 2008, naturally so does the wonderful experience of telling our government how much money we made last year so we can pay our taxes. Now I’m not against paying taxes – I just don’t want to pay more than my fair share!

With the topic of taxes in mind I wanted to start a short series describing an excellent tax saving strategy for self employed business owners – the Private Health Services Agreement (PHSA).

PHSA’s are best described as a tax saving strategy as opposed to a typical health insurance plan through Blue Cross, Manulife, or any of my other suppliers. The advantage is that there are no premiums and no waiting periods – for any services including crowns, bridges, dentures, and orthodontia!

Also more services are covered that typical insurance company plans won’t – such as MRI treatments, laser eye surgery, plastic surgery, and even over the counter drugs! Another feature is that there are no limits or caps imposed by the insurance company i.e.  prescription glasses are covered up to $200 per 2 year period. You can spend as much as you like on these health and dental services!

In a nut shell – whatever medical and dental expenses you have – they will become 100% tax deductible expenses for your company – just like premiums for a traditional insurance plan. However, if you are like some people who rarely use their health plan – this can save you significant dollars on your monthly cash flow because you are not paying the premiums.  Or if you already have coverage from your spouse and are looking to “top up” – this can provide you with a better alternative to purchasing  individual health plans.

In the next parts I will discuss how this plan can work for a one-man operation (Joe the plumber) to a company with multiple employees. In the meantime if you have questions, contact me at any time!

Until then,

Rhett