The Health Spending Account for Business Owners and Incorporated Professionals

Jan 14, 2025

Are you tired of using your hard-earned after-tax dollars to cover medical expenses? As a business owner, the burden of managing healthcare costs can be overwhelming. However, there’s a little-known solution that can alleviate this financial strain – the Health Spending Account.

Designed specifically for entrepreneurs like you, the Health Spending Account offers a tax-efficient way to manage medical expenses. Say goodbye to paying out of pocket with after-tax dollars for your healthcare needs, and let’s explore the advantages of this specialized account tailored to meet the unique needs of business owners and incorporated professionals.

Who’s eligible?

The Health Spending Account is available to a wide range of businesses, making it an inclusive and flexible solution. Small businesses, professional corporations, and corporations that wish to supplement an existing health plan are all eligible to participate in this program. Whether you run a small family-owned enterprise, a professional practice, or a larger corporate entity, the Health Spending Account can cater to your specific needs and provide valuable healthcare benefits for you and your employees.

What are the benefits?

Tax Deductibility for Corporations

As a business owner or incorporated professional, you know the significance of minimizing tax burdens. The Health Spending Account allows your corporation to make contributions that are 100 percent tax-deductible. By taking advantage of this tax benefit, you can reduce your corporation’s taxable income, resulting in lower overall taxes. This leaves you with more funds to reinvest in your business, expand operations, or reward your hardworking employees.

Tax-Free Benefits for You and Your Employees

The Health Spending Account offers tax-free reimbursements for both you, as the business owner or incorporated professional, and your employees. Any medical expense covered through the account is received as tax-free income. This means you get to retain more of your earnings while providing valuable healthcare benefits to your workforce without increasing their taxable income. It’s a win-win situation that fosters employee satisfaction and loyalty.

No monthly premium to pay and cost-efficient

A Health Spending Account (HSA) offers a highly cost-efficient approach to managing medical expenses, providing individuals and businesses with significant financial advantages. One of the key benefits of an HSA is that there is no monthly premium to pay, unlike traditional health insurance plans. This means that participants can access valuable healthcare benefits without the burden of regular premium payments. With no ongoing costs, the HSA allows individuals and businesses to allocate their funds more strategically, ensuring that their healthcare budget is utilized efficiently. This cost-effective feature makes the Health Spending Account an attractive option for those seeking to optimize their healthcare spending while enjoying comprehensive medical coverage.

How it works

The Health Spending Account simplifies the process of managing healthcare expenses:

1. Employees pay for medical services out of pocket.

2. The employee submits the claim for reimbursement.

3. The claim amount is then reimbursed tax-free through the corporation’s account.

4. The claim is reimbursed to the employee.

This streamlined process eliminates the complexities associated with traditional health insurance plans, saving you time and effort.

To learn more about how a health spending account can benefit you, please reach out today to book a meeting, and we would be happy to help.

Financial Planning for Business Owners

Nov 5, 2024

Financial planning for business owners is often two-sided: personal financial planning and planning for the business.

Business owners have access to many financial tools that employees do not. Having access to these tools is a great advantage; however, learning about and understanding these tools can be overwhelming. A financial plan can relieve this.

A financial plan looks at where you are today and where you want to go. It determines your short, medium and long-term financial goals and how you can reach them. For you, personally and for your business.

Why do you need a Financial Plan?

  • Worry less about money and gain control.
  • Organize your finances.
  • Prioritize your goals.
  • Focus on the big picture.
  • Save money to reach your goals.

For a business owner, personal and business finances are connected. Therefore, your financial plan should address both.

What does a Financial Plan for a Business include?

There are two main sides your business financial plan should address: Growth and Preservation

Growth:

  • Cash Management – Managing Cash & Debt
  • Tax Planning – Finding tax efficiencies
  • Retaining & Attracting Key Talent

Preservation:

  • Investment – either back into the business or outside of the business
  • Insurance Planning/Risk Management
  • Succession/Exit Planning

What does a Personal Financial Plan include?

There are two main sides your personal financial plan should address: Accumulation and Protection

Accumulation:

  • Cash Management – Savings and Debt
  • Tax Planning
  • Investments

Protection:

  • Insurance Planning
  • Health Insurance
  • Estate Planning

What is the Financial Planning Process?

  • Establish and define the financial planner-client relationship
  • Gather information about the current financial situation and goals, including lifestyle goals
  • Analyze and evaluate the current financial status
  • Develop and present strategies and solutions to achieve goals
  • Implement recommendations
  • Monitor and review recommendations – Adjust if necessary

Next steps

Talk to us about developing your financial plan for you and your business so that you can achieve your financial goals.

Insurance Planning for Business Owners

Sep 30, 2024

For business owners, making sure your business is financially protected can be overwhelming. Business owners face a unique set of challenges when it comes to managing risk. Insurance can play an important role when it comes to reducing the financial impact on your business in the case of uncontrollable events such as disability, critical illness or loss of a key shareholder or employee.

This infographic addresses the importance of corporate insurance.

The 4 areas of insurance a business owner should take care of are:

  • Health
  • Disability
  • Critical Illness
  • Life

Health: We are fortunate in Canada, where the healthcare system pays for basic healthcare services for Canadian citizens and permanent residents. However, not everything healthcare related is covered, in reality, 30% of our health costs* are paid for out of pocket or through private insurance such as prescription medication, dental, prescription glasses, physiotherapy, etc.

For business owners, offering employee health benefits make smart business sense because health benefits can form part of a compensation package and can help retain key employees and attract new talent.

For business owners that are looking to provide alternative health plans in a cost effective manner, you may want to consider a health spending account.

Disability: Most people spend money on protecting their home and car, but many overlook protecting their greatest asset: their ability to earn income. Unfortunately one in three people on average will be disabled for 90 days or more at least once before the age of 65.

Consider the financial impact this would have on your business if you, a key employee or shareholder were to suffer from an injury or illness. Disability insurance can provide a monthly income to help keep your business running.

Business overhead expense insurance can provide monthly reimbursement of expenses during total disability such as rent for commercial space, utilities, employee salaries and benefits, equipment leasing costs, accounting fees, insurance premiums for property and liability, etc.

Key person disability insurance can be used to provide monthly funds for the key employee while they’re disabled and protect the business from lost revenue while your business finds and trains an appropriate replacement.

Buy sell disability insurance can provide you with a lump sum payment if your business partner were to become totally disabled. These funds can be used to purchase the shares of the disabled partner, fund a buy sell agreement and reassure creditors and suppliers.

Critical Illness: For a lot of us, the idea of experiencing a critical illness such as a heart attack, stroke or cancer can seem unlikely, but almost 3 in 4 (73%) working Canadians know someone who experience a serious illness. Sadly, this can have serious consequences on you, your family and business, with Critical Illness insurance, it provides a lump sum payment so you can focus on your recovery.

Key person critical illness insurance can be used to provide funds to the company so it can supplement income during time away, cover debt repayment, salary for key employees or fixed overhead expenses.

Buy sell critical illness insurance can provide you with a lump sum payment if your business partner or shareholder were to suffer from a critical illness. These funds can be used to purchase the shares of the partner, fund a buy sell agreement and reassure creditors and suppliers.

Life: For a business owner, not only do your employees depend on you for financial support but your loved ones do too. Life insurance is important because it can protect your business and also be another form of investment for excess company funds.

Key person life insurance can be used to provide a lump sum payment to the company on death of the insured so it can keep the business going until you an appropriate replacement is found. It can also be used to retain loyal employees by supplying a retirement fund inside the insurance policy.

Buy sell life insurance can provide you with a lump sum payment if your business partner or shareholder were to pass away. These funds can be used to purchase the shares of the deceased partner, fund a buy sell agreement and reassure creditors and suppliers.

Loan coverage life insurance can help cover off any outstanding business loans and debts.

Reduce taxes & diversify your portfolio, often life insurance is viewed only as protection, however with permanent life insurance, there is an option to deposit excess company funds not needed for operations to provide for tax-free growth (within government limits)  to diversify your portfolio and reduce taxes on passive investments.

Talk to us about helping making sure you and your business are protected.

Contact Us

Accessing Corporate Earnings

Aug 31, 2024

brandableContent

One of the financial planning issues that business owners face is how to access their corporate earnings in a tax efficient way.

There are 5 standard methods:

  • Salary
  • Dividend
  • Shareholder Loans
  • Transfer Personal Assets
  • Income Splitting

There are also unique ways utilizing life insurance and critical illness insurance to access your retained earnings. Please contact us to learn how we can get more money in your pocket than in the government’s.

Immediate Finance Arrangement

Jul 31, 2024

 

An Immediate Financing Arrangement (commonly known as an IFA) is a financial planning vehicle which combines life insurance coverage with tax advantaged wealth accumulation.

Who could benefit from an Immediate Financing Arrangement?

An IFA is a financial strategy which serves a particular purpose and, as such, isn’t suitable for everybody. Affluent individuals with a high net worth or business owners of a private corporation that have a steady and stable cash flow situation could potentially benefit greatly from an IFA if they are seeking permanent life insurance coverage, as well as paying (and expecting to pay in the future) income tax at the highest rate.  

How does an Immediate Financing Arrangement work?

There is a particular process that should be followed in order to get the most from this estate planning strategy, as follows:

  • First, the individual or company buy a cash value permanent life insurance policy, contributing the maximum premiums permitted by the policy. 
  • This policy is pledged as collateral to a bank in exchange for loan.
  • The individual/company must pay the loan interest.
  • The individual/company can then use the loan funds to reinvest into their business or to invest.  

Upon the death of the policyholder, the loan is paid off by the payout from the life insurance policy and the policyholder’s beneficiaries receive the difference. Alternatively, if the policy is owned by a private corporation, the full amount of life insurance death benefit is available for Capital Dividend Account.

Are there any downsides to an Immediate Financing Arrangement?

It’s critical that you seek professional advice to ensure that your personal situation is suited to such an arrangement and to also ensure that it is conducted and executed in exactly the right way in order to perform successfully.

If you are interested in the benefits that an IFA can offer you and / or your business, please contact us directly and we can work with you to analyze the potential effectiveness of this strategy and support you make it work for you.

 

The Estate Bond

Jul 18, 2024

Growing your estate without undue market risk and taxes

Often we see older investors shift gears near retirement and beyond.  Many become risk-averse and move their assets into fixed income type investments.  Unfortunately, this often results in the assets being exposed to higher rates of income tax and lower rates of return – never a good combination.

Or maybe the older investor cannot fully enjoy their retirement years for fear of spending their children’s inheritance.

The Estate Bond financial planning strategy presents a solution to both of these problems.

How does it work?

  • Surplus funds are moved out of the income tax stream and into a tax-exempt life insurance policy.
  • Each year a specified amount is transferred from tax exposed savings to the life insurance policy.

In essence, we are substituting one investment (the life insurance policy) for another (fixed income assets).

The result ?

  • The cash value in the life insurance policy grows tax-deferred and may also increase the insurance benefits payable at death.
  • Since the death benefit of a life insurance policy is received tax-free by the beneficiary this strategy results in a permanent tax shelter.

In other words, there is an increase in the funds available to heirs and beneficiaries after death and a decrease in the taxes payable before death.

The Estate Bond in action

Robert, aged 60, and his wife Sarah, aged 58 are satisfied that they will have sufficient income during their retirement years.  They used the Estate Bond concept as a means to guarantee their legacy to their children and grandchildren.

Investment: $30,000 for 20 years into a Joint Second-to-Die Participating Whole Life policy which is guaranteed to be paid up in 20 years

Immediate Death Benefit: $848,900

Death Benefit in 30 years: $2,075,800 (at current dividend scale)

Cash Surrender Value in 30 years: $1,589,400 (at current dividend scale) *

* If surrendered, the cash surrender value would be subject to income tax but there are strategies that could be employed to avoid this tax.  Assumes using Participating Whole Life illustrated at current dividend scale.  Values shown in 30th year at approximate life expectancy.

Alternative investment in action

Investment: $30,000 for 20 years in a fixed income investment earning 2.5% AFTER tax

Immediate Death Benefit:  $30,000

Estate Benefit in 30 years: $1,005,504

It should be noted that obtaining this rate of return in today’s fixed income environment would be challenging. 

Additional benefits of the Estate Bond

  • The estate value of $2,075,800 in 30 years is not subject to income tax. 
  • The proceeds at death, if paid to a named beneficiary, are not subject to probate fees.
  • If the beneficiary is one of the preferred class (spouse, parent, child or grandchild) the cash value and the death proceeds are protected from claims of creditors or litigants during the insured’s lifetime.
  • The use of life insurance with a named beneficiary also results in a totally confidential wealth transfer.
  • Robert and his wife can both enjoy their retirement without affecting their family’s inheritance.

The Estate Bond strategy is designed for affluent individuals who are 45 years of age or older and who are in reasonably good health. For those who meet these criteria and have surplus funds to invest, this concept can provide significant benefits and results.

Connect with us if you have any questions about the Estate Bond strategy or would like to determine if it is right for you.  As always, please feel free to share this article with anyone you think will find it of interest.