The Costs of Health


By Shaun Sun, BComm, CFP 

Don and Jane Smith are the proud and loving parents of 2 children age 15 and 16. Don is an engineer, sole-owner and employee of a successful incorporated consulting firm. At a meeting with their accountant, one of the topics of concern for the family is the large health costs they are currently spending to pay for dentist visits, braces for both children, and glasses for their son and Don, just to name a few. Jane’s job as a dental assistant provides her with a group health and dental plan that covers some of these expenses for the family. However, with low plan maximums and high co-insurance rates, she estimates they have spent over $10,000 out-of-pocket this year alone and expects this to continue for next few years given the amount of orthodontic work that needs to be done on the children. With Jane’s net income significantly less than Don’s, their accountant recommends claiming all the out-of-pocket medical expenses on her tax return to take full advantage of the Medical Expenses Tax Credit (METC), since only expenses in excess of the threshold (currently the lesser of $2,171 or 3% of net income for 2014) is eligible for tax relief.

Don and Jane meet with their Rogers Group Financial advisor, who suggests there is an opportunity to use a Private Health Services Plan (PHSP) as a more effective way of paying for these health expenses. She explains that by setting up the plan in Don’s corporation, the deposits to the plan would be tax-deductible to the corporation and these contributions could be used to have the company pay for the out-of-pocket medical and health expenses that would otherwise be eligible for the METC. In addition, by using a PHSP, the first dollar paid for health expenses would be eligible for tax relief without having to meet any expense threshold.