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Deducting health tax benefits

By Lloyd Lindsay |

Chelsey asked:

Do you deduct health benefits before or after taxes?

Lloyd Lindsay answered:

The answer depends on whether your company is incorporated or unincorporated.

An incorporated company is an artificial person created by law. If the company spends money for employee health insurance plans, the expense would be deductible from its income before taxes,as long as the expenditure is reasonable in the circumstances. However, the Income Tax Act (ITA) considers some of these expenditures to be employee benefits that are taxable in the hands of the employees. For example, payments to a private health insurance plan and certain Group Insurance Plans would not be a taxable employee benefit, but payments to a government plan would.

The ITA does not consider a proprietor or partner of an unincorporated company to be an employee. If the company has employees and spends money for employee health or group insurance plans, the expense would be deductible from its income. Where the ITA considers some of these expenditures to be employee benefits, the payments will be taxable in the hands of the employee. Where the taxable benefit relates to a proprietor or partner, their share of the expenditure may be denied as a deduction to the business.

Health and Welfare Trusts have special treatment. In addition, payments to health and group insurance plans with only one beneficiary generally don't qualify for a business income deduction. Tax treatment for Health and Group insurance plans are complex. For more information, contact a qualified agentwho sells these plans.

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