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Private Health Services Plans Presented By: Kevin Wheeler, CFP, EPC, FMA, RHU Regional Sales Director - Olympia Benefits Inc
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“The biggest financial mistake people make is not taking advantage of tax deductions that are available to them”. Why? “They do not know about them.” David Chilton, author The Wealthy Barber
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Private Health Services Plan aka Health Spending Accounts Designed by CRA in 1983 (IT 339R) Revised in 1988 (IT 339R2) Incentive for Small Businesses? What is a PHSP?
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According to recent sanofi aventis Healthcare Surveys, the percentage of employees who have an HCSA is rising — from 18% in 2009, to 29% in 2010, to 32% in 2011. By Investment Executive Staff | May 22, 2012 12:20 Why learn about PHSP’s?
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Meaning of a “Private Health Services Plan“ Contributions made by Employer are Tax-Deductible Employee receives contributions Tax-Free Presence of a third-party administrator is required (e.g. Olympia Benefits Inc.)
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PHSP Rules There must be an employer/employee relationship There must be a contract between the employer and the employee There must be a contract between the employer and the Administrator of the PHSP The plan must include an annual spending amount, which cannot normally be changed.
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More PHSP Rules… The plan allows reimbursement for specific health care needs as specified by the employer or all medical expenses allowed by CRA. Business owners are eligible if they also act as an employee, even if there are no other employees in the business. A caveat here is that, if there are other employees they must be included in the plan. When choosing a PHSP administrator, be very concerned with their abilities, plan design, and execution.
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* A private health services plan qualifying under paragraphs (a) or (b) of the definition in subsection 248(1) is a plan in the nature of insurance. In this respect the plan must contain the following basic elements: an undertaking by one person (Corp.), to indemnify another person (Employee), for an agreed consideration (Defined Benefit Amount), from a loss or liability in respect of an event (Eligible Expense), the happening of which is uncertain (Potential Future Claims). * IT 339R2 “…in the nature of insurance”
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The amounts so paid must be for one or more of (a) the employee (b) the employee's spouse and (c) any member of the employee's household with whom the employee is connected by blood relationship, marriage or adoption. Who is Eligible for Benefits?
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Medical and hospital insurance plans offered by Blue Cross and various life insurers, for example, are considered private health services plans within the meaning of subsection 248(1). In addition, the Group Surgical Medical Insurance Plan covering federal government employees qualifies as a private health services plan within the meaning of subsection 248(1). Therefore, payments made by an individual under any such plan qualify as medical expenses by virtue of paragraph 118.2(2)(q). Will PHSP’s be challenged?
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Administrator usually charges 5 – 10% administration fee Limits for Plans range from $10,000 per year to unlimited (be informed of the rules). OBI = $15,000 max Set-up Fees range from $0 to $500 one-time or annual or monthly fees even with no claims. OBI = $375 one-time. Unused Benefits can rollover for one yearonly (Incorporated). No rollover for sole proprietors. Beware of Shareholder benefit structure PHSP Structure
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What’s the difference between a PHSP and a Health & Welfare Trust (IT-85R2)? A HWT may contain: o a group sickness or accident insurance plan o a private health services plan o a group term life insurance policy, or o any combination of the above To qualify for treatment as a health and welfare trust the funds of the trust cannot revert to the employer or be used for any purpose other than providing health and welfare benefits for which the contributions are made. (#6. IT-85R2)
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Contributions to a health and welfare trust by an employer using the accrual method of computing income are deductible in the taxation year in which the legal obligation to make the contributions arose. Large Contribution for a tax write-off? – In addition, the employer's contributions to the fund must not exceed the amounts required to provide these benefits. Health & Welfare Trusts
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#1. The Employee (Owner) pays the medical bill personally. So far, this is an after-tax expense. (e.g. $3,000 medical expense) #2. The employee’s Corporation remits the receipts and payment to Olympia Benefits in the amount of the medical expense plus the 10% administration fee. The entire payment is a deductible expense. (e.g. $3,000 for the medical expense plus the $300 administration fee for a total of $3,300) #3. Olympia Benefits reimburses the Employee (Owner) for the cost of the medical expense. The net result is a business deduction in the amount of the medical expense plus the 10% administration fee and the Employee (Owner) is reimbursed on a tax-free basis.
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Group Plans (PLAN THREE)
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The Difference Insured Monthly premiums Co-insurance Deductibles Ineligible expenses Upper age restrictions Tight definition of dependant Insured plans make profit on the difference between paid premiums and paid claims PHSP No monthly premium No co-insurance No deductable No ineligible expenses from ITA No upper age limits Broad definition of dependant Make profit on paid claims, set- up fees
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ONE TIME SET-UP FEE: $375 (one-person corporation) If spouse receives T4 income, the number of employees to be enrolled is two (Set-up Fee is then $415). Travel and Exceptional Expense Insurance is optional. ONE TIME SET-UP FEE: $375 (Sole Proprietor) Mandatory Insurance Component. Travel Insurance or Exceptional Expense Insurance must be purchased. Plan 2 is exempt from GST on Set-up fees and all future admin costs. ONE TIME SET-UP FEE: $335 + $40 per employee (For businesses with arm’s-length employees) Travel and Exceptional Expense Insurance is optional.
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Did you know you have a choice? (METC – is the medical expense tax credit, businesses go down this path by default) There are only 2 paths.
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METC – Medical Expense Tax Credit Only expenses in excess of the lesser of $2,109 or 3% of net income can be claimed. The lowest tax rate is applied to the medical expenses to determine the amount of the tax credit.
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*Assumes Marginal Tax Rate of 32%. PHSPVs. No Plan $1,500 Medical Expense $1,500 $0 Income Tax on $1,500* $706 $150 Administration Fee $0 $1,650Net Cost$2,168 $0 Medical Tax Credit ($38) $518SAVINGS$0 METC is based on 3%. Only expenses exceeding $1350 apply to METC.
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PHSPVs. No Plan $3,000 Medical Expense $3,000 $0 Income Tax on $3,000* $1,688 $300 Administration Fee $0 $3,300Net Cost$4,465 $0 Medical Tax Credit ($223) $1,165SAVINGS$0 *Assumes Marginal Tax Rate of 36%. METC is based on expenses exceeding $2,109.
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PHSPVs. No Plan $3,000 Medical Expense $3,000 $0 Income Tax on $3,000* $1,918 $300 Administration Fee $0 $3,300Net Cost$4,695 $0 Medical Tax Credit ($223) $1,395SAVINGS$0 *Assumes Marginal Tax Rate of 39%. METC is based on expenses exceeding $2,109.
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How do I know if a PHSP is right for me? Ask yourself these 3 questions: 1.Do I own a Business? (Incorporated or Unincorporated) 2.Do I have Medical Expenses? 3.Do I pay Tax? If you answered “Yes” to all three of these questions then a PHSP will save you money.
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Regulated – Internal/External Auditors Dedicated Customer Service Centre Average claim processed in 48 hours Agent Services Online Claims – Plan 1 (Plans 2 and 3 soon) Barcode Claims Personalized Advisor Sites – Online Sign-up Client Approach Letter
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Over 40,000 Small Business Clients in Western Canada Over 100,000 individuals on Olympia Benefits Health Plans Olympia processed over $50 Million in Health Claims in 2011 Olympia Benefits
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Go to: MY OLYMPIA Login Username: 7777Password: olympia For the Customer: Reports Claim Forms Account Balance For the Advisor: Commission Reports Customer Claims Reports Resources – Forms, Policies, etc.
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THANK YOU!
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