Cost Plus is an excellent addition to your Traditional Group Insurance plan as it provides your staff with a tax-free benefit, using pre-tax business dollars. Any legitimate, as defined by CRA, medical or dental expense, which is limited or not covered by your plan, may be eligible. Examples are paramedical amounts in excess of the maximums, major dental or orthodontic coverage, laser eye surgery, etc… Other than administrative fees (usually 10% to 15% of the claim cost…minimums and maximums may also apply), there is no additional cost to having the Cost Plus benefit.
Example:
The child of an executive requires a $3,000 orthodontic treatment. The benefit plan covers basic dental coverage only.
Assumptions:
- Marginal tax rate is 43%.
- Cost Plus claim would cost $3,000 + $300 (10% Admin fee) + applicable taxes.
- Corporate tax rate for this business 15%.
Without Cost Plus:
- Executive must earn $5,300 to have $3,000 of after-tax dollars to pay the expense.
With Cost Plus:
- Executive pays for the expense and submits the receipt to the employer.
- The employer writes a cheque to the carrier for the Cost Plus claim ($3,300 + taxes).
- The executive is reimbursed the $3,000 as a non-taxable benefit.
- With a 15% tax rate, the net cost to the business after tax is only $2,805.
The Result:
The expense has been paid for in a tax-effective manner and the executive has received $3,000 in tax-free benefits.
Owners/Shareholders should consult their accountant or tax advisor for more details on how this benefit may apply to them. Taxation rules and interpretations are constantly changing and this example should not be taken as tax advice.
Note:
- Effective January 1, 2013, CRA views trading bonuses for flex credits (HSA) as taxable benefits.
- CRA may deem that the application of cost-plus for shareholders only may result in a taxable benefit and negate the benefits of a cost-plus claim.
Located in Cambridge, ON Sharkey Group Insurance provides independent Employee Benefits advice & counsel for Small Businesses across Ontario.