The Hidden Health-Spend Tax
You are already paying for healthcare. The question is whether you are paying the expensive way. For an incorporated owner, the difference between paying personally and paying through a Health Spending Account is roughly fifteen cents on every health dollar, every year, permanently.
What it costs the company to deliver one dollar of care
There are two ways an incorporated owner can pay for a dental bill, a pair of glasses, or a course of physiotherapy.
The personal route: the company pays you salary, you pay income tax on it, and you buy the care with what is left. Every dollar of care has to be earned as considerably more than a dollar of salary first.
The Health Spending Account route: the company pays the claim directly as a deductible business expense through an administered account. The care is received tax-free by the employee, and the cost to the company is the claim plus an administration fee.
| Route | Cost per $1 of care |
|---|---|
| Personal route (status quo) | $1.43 |
| HSA route (engineered) | $1.22 |
The working assumptions
These are the assumptions behind the comparison. Change any of them and the numbers move — which is the point of the levers below.
The structure
Three owners, one Ontario corporation.
The arithmetic works for a single owner too; the combined totals simply scale.
Corporate tax rate
12.2% small business rate applied to the corporation.
The lower the corporate rate relative to the personal rate, the larger the advantage.
Administration fee
10% of the claim amount, charged by the HSA administrator.
This is negotiable and varies by provider. Halving it materially changes the result.
Tax rates, administration fees and eligibility rules change. Every figure on this page is illustrative and should be confirmed against your own circumstances and the current tax year before you act on it.
The three levers
Three variables decide how much an HSA is worth to a particular owner.
Personal tax bracket
The higher your personal marginal rate, the more expensive the personal route becomes and the larger the HSA advantage.
The difference between a 43% and a 30% bracket is substantial on the same spend.
Administration fee
Moving from a 10% fee to a 5% fee directly reduces the cost of the HSA route.
Worth negotiating, and worth comparing between administrators rather than accepting the first quoted.
Eligible spend
The volume of care actually routed through the account. Eligible categories include glasses and eye exams, dental, physiotherapy and prescriptions.
Most owners under-use the account because they forget it exists mid-year. The saving only materialises on spend that actually goes through it.