Private Health Services Plan

Frequently Asked Questions

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John Beaton

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Q...What is a Private Health Services Plan?

A...It is a Canada Customs and Revenue [formerly Revenue Canada] approved Health & Welfare Trust that allows self-employed individuals and corporations to tax-deduct their health and dental expenses in a tax-effective and cost-efficient manner. The trust takes advantage of Section 248(1) of the Income Tax Act. This particular plan is called bizflexTM.

Q...Who administers bizflexTM?

A...AVP Health & Welfare Trust is a specialist in Health and Welfare Trusts (HWT) and Private Health Services Plans (PHSP), and acts as a third party administrator of these plans. AVP Health & Welfare Trust is based in Calgary with offices in Vancouver. Their Toronto office will open in 2008.

Q...Why use an administrator?

A...Canada Customs & Revenue, formerly Revenue Canada, insists upon a 3rd Party Trustee and Administrator to adjudicate for accuracy and compliance.

Q...How is bizflexTM administered?

A...Claims can be paid in one of two ways. The healthcare practitioner – for example, your dentist – can bill AVP Health & Welfare Trust directly if you have prefunded your plan. The second method – particularly for smaller claims – is to pay for the expense and submit it to AVP Health & Welfare Trust along with your 10% administration fee plus GST on adminstration fee for reimbursement. You will then be reimbursed for the actual expense less the adminstration fee and GST. Your tax-deductable expense includes the administration fee and GST.

Q...What is the maximum annual deduction allowed?

A...For Corporations, there are no set annual limits, however, it is suggested that using an upper limit guideline of about 15% of annual T-4 income per employee is reasonable. For unincorporated individuals and their families, there is a limit of $1,500 per adult per year and $750 per child [age 18 and under] per year. For example, two adults and two children would be entitled to a maximum of $4,500 per year.

Q...Does it matter who spends the money from the unincorporated person's household maximum?

A...No it doesn’t matter. Anyone in the family can spend up to the total allowable amount for the entire family. For example, the entire $4,500 from the previous example could be applied to the wife’s laser eye surgery or the children’s orthodontic treatments.

Q...What is bizflex plusTM and do I have to purchase it?

A... bizflex plusTM is a high deductible Catastrophic Health Coverage and a non-deductible Out of Province coverage. If you are incorporated, it is optional, but if you are not incorporated, it is mandatory.

Q...I'm incorporated and drawing dividends but not a salary from my corporation. Do I qualify to have a plan?

A...No, you don't qualify if you are not receiving a T-4rd salary from your corporation. Without a salary, CCRA would consider it a shareholder benefit instead of an employee benefit.

Q...I'm a small business owner with an employee benefits plan in place for myself and my employees. Why should I consider a Private Health Services Plan?

A...You may have noticed the high cost of maintaining an employee benefits plan and the cost is increasing yearly. It is likely that the health and dental choices you have made do not satisfy everyone in the group. For example, some employees will have glasses and want vision care, while other employees will not have a need for this benefit and will not want to pay for it. In a traditional employee benefits package, either everyone gets vision care or no one. The cost of providing health and dental benefits to each employee can cost as much as $1,500 to $2,000 per year. If the employees use the benefits in excess of 60% of the premium paid, it is likely that the insurance company underwriting the coverage will increase the premiums the following year. The insurance companies are in business to make a profit so future negative claims to premium ratios will result in ever-increasing premiums and maybe even future cancellation of coverage. The use of a Private Health Services Plan allows the employer to cost contain spending by setting limits on how much is given to the employees to spend on health and dental expenses. As for the employees, they can spend their annual spending limit on whatever qualifying health and dental services they want.

Q...What’s the cost of setting up a plan through AVP Health & Welfare Trust?

A...There is a one-time set-up fee of $200. There are no premiums for incorporated companies or individuals however unincorporated individuals or companies have a small additional ongoing cost for bizflex plusTM to satisfy the insurance component rule for a Health & Welfare Trust. Incorporated companies and incorporated individuals may also find bizflex plusTM valuable. You will find details about bizflex plusTM here. On the other hand, everyone pays a 10% administration fee on actual expenses. For example, if you spend $1,000 on healthcare or dental expenses, you would submit $1,000 + 10% = $1100 to the trust administrator who would refund a cheque to you for $1,000 and keep the 10% adminstration fee. However, the total $1,100 expense is fully tax deductible to you. [note that GST calculation on the adminstration fee is not shown in this example.]

Q...Can I pre-fund my plan?

A...Yes, you may contribute regular monthy deposits or make lump sum deposits to your plan to prepare for future healthcare and/or dental expenses. You will be entitled to a tax deduction for the year in which you have contributed the money even though you have not yet spent it for health or dental services. You may wish to prefund your plan if you anticipate major future medical or dental expenses.

Q...What happens to the money in the plan?

A...The money you contribute goes into a trust account and is withdrawn tax-free provided it is used for qualifying health care and/or dental expenses.

Q...How do I keep track of all my expenses?

A...AVP Health & Welfare Trust will do this for you. They will send you an annual statement detailing all money received and all claims paid. At year-end, you will have one comprehensive statement to take to your accountant or tax preparer for income tax filing purposes.

Q...Can I deduct expenses already paid for this year?

A...Yes, as long as you set up your plan immediately and detail past expenses within the current year with receipts.

Q...As a sole proprietor, where on my personal income tax form do I enter my expenses which I have processed through my private health services plan?

A...You enter them under "other expenses" on line 232 of your income tax form.

Q...Can I deduct the cost of my group insurance premiums?

A...Yes, but only for the health and dental portion of your premiums as well as the non-claimable co-insurance portion of each claim that you pay out of your own pocket. For example, if your group insurance only repays you 80% of each eligible claim, then the 20% that you had to pay out of your own pocket is eligible to pass through a trust.

Q...How do I go about setting up the plan?

A...Print and fill out the online Application Form and sent along with a cheque in the amount of $200 CDN made payable to AVP Health & Welfare Trust by mail to Beaton Insurance Services, 15310 Pacific Avenue, White Rock, B.C. V4B 1P9. At your direction, a trust contract will be sent to you either by regular mail or e-mail for signature. At that time you will be asked to return the signed contract, along with your initial applicable receipts back to AVP Health & Welfare Trust. If you need further information, call John Beaton at 1-800-667-8818. Please note that this is a Canadian Tax Plan and is only available to Canadian residents.

Q...Where can I find out more about the Canada Revenue Agency’s interpretation of these plans?

A...There is information on the Canada Revenue Agency website on the guidelines for Health and Welfare Trusts and Private Health Services Plans. The CRA bulletins specific to the subject are as follows:

  • IT-85R2 – Health and Welfare Trusts
  • IT-339R2 – Private Health Services Plans
  • IT-519R2 – Medical Expense, Disability Tax Credits and Attendant Care Deduction (What’s Covered)

Q...Do you have a drug card available for employee use?

A...Yes. This enables the employee to use the company drug card when they go to a pharmacy to purchase prescription drugs. So, instead of the employee paying out of pocket, the expense is billed to the company when a drug card is used. However, a minimum number of employees is required and there is a cost attached to this convenience.

If you still have questions that have not been answered by the above, please type your question in the text box below and provide your e-mail address.

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Beaton Insurance Services
15310 Pacific Avenue
White Rock, British Columbia, Canada V4B 1P9
Tel: (604) 535-2404
Toll Free Canada: 1-800-667-8818
Web site: http://www.aftertaxes.ca
E-mail: john@beaton-insurance.com

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