Cost Plus (aka Health Care Spending Account) is a cost efficient and tax effective means of covering health and dental expenses or supplementing existing group insurance benefits.
Working with your group benefit coverage, Cost Plus can:
• cover items not covered or paid for by your group plan,
• reimburse these costs on a tax-free basis to individuals,
• be paid with pre-tax dollars through your company, creating a business deduction like group insurance premiums.
WHAT IS COST PLUS?
Cost Plus is a proven, tax-effective means of covering Health, Dental or Vision Care expenses not eligible under your regular group insurance plan. Used correctly it can be considered a Private Health Services Plan (PHSP), recognized by Canada Revenue Agency (CRA) as a vehicle which allows businesses to deduct health-related expenses eligible under the Income Tax Act. Eligible Cost Plus charges are treated the same as group insurance premiums and can be a deductible business expense. Cost Plus benefits paid to individuals are generally not taxable in the hands of the employee
who receives them (except in Quebec where provincial taxes apply). Cost Plus covers all supplies and services considered eligible medical expenses under the Canadian
Income Tax Act. This would include amounts over any limits in your benefit plan, the co-insurance amounts you are responsible for, or expenses such as orthodontic treatments that may not be part of your current benefit program.
WHO CAN USE COST PLUS?
Cost Plus can be used by most businesses, but there may be limits as to the total amounts deductible to the business under this arrangement.
To use Cost Plus, an employer must have an obligation under the employee’s contract of employment to reimburse eligible expenses under the program. Though many employers do not use formal, written employment contracts, if you wish to offer Cost Plus benefits to your employees, you can include a written addendum to their group insurance employee booklet outlining its availability. There is no claim limit for the amount of medical expenses that can be reimbursed, but any expenses must be reasonable in order to be deductible. Different claim limits can be set for different groups or classes within the organization.
CAN SHAREHOLDERS USE COST PLUS?
A shareholder can use Cost Plus if they are actively employed by the company, and the benefit is paid in their capacity as an employee. As an employee, the amount would be deductible to the corporation and the benefits paid would be non-taxable to the individual. If Canada Revenue Agency deems the benefit is received in their capacity as a shareholder however, then the amount is not deductible to the corporation, and the benefits paid become a taxable benefit to the individual.