Every year around this time we see some thoughtful year end tax planning tips that will hopefully save us some money in the year ahead. I thought I might bring your attention to something that can save you money for the year we are still currently in. The use of a Health and Welfare Trust (HWT) allows for the reimbursement of most medical, dental and wellness costs that you have incurred over the year. It is funded by your corporation and is therefore deductible.
Many folks are shocked that they cannot directly pay for these costs from their companies and claim a deduction. In order to create a deduction a independent entity must be engaged. For most people a group medical plan offered by an insurance company does the trick. A Private Health Services Plan (PHSP) is a form of insurance that can cover a small group or a single individual. The HWT, which can act as a PHSP will allow you to deduct your medical costs without having to pay annual premiums in excess of the actual costs.
I have set up many hundreds of these plans for business owners and incorporated professionals alike. For many they use the HWT to augment their existing insurance plans, to cover things that are not covered such as children’s braces, or for the co-pay portion of their own prescriptions. The HWT can also be used for special needs such as expensive pharmaceutical costs, modifications to a home for a particular medical need or for special care for a child. Ontario’s non participation in caring for autistic children is a perfect example of where a HWT can make sense.
The HWT must file and pay some taxes in certain provinces (Ontario, NL) but they are minor and would be incurred through a traditional benefits program anyways. The plans can be administered by someone at your company, or by your accountant. Larger groups must be aware of privacy concerns.
The ability to radically reduce costs within a larger benefit plan, or provide coverage where non existed are the key benefits. Companies considering implementing a plan should be aware of section 15 of the ITA and must include some employees (if you have them) in order to avoid shareholder benefit penalties.
The nice part about the HWT is if you have medical costs paid for already this year the plan has an effective start date of January 1st. That means if you implement the plan before year end you can still deduct those costs.