Definitions
- Benefit Levels
- A benefit level or annual maximum reimbursement level is the annual dollar amount that an employer agrees to reimburse to employees for eligible medical or dental costs. The maximum must be a reasonable and fixed amount. This dollar value covers the employee and their dependents.
- Reasons for and discussion of Benefit Levels
- Changing benefit levels
- Cost-plus PHSP
- The cost of medical and dental expenses plus an administration fee.
- CPP
- Canada Pension Plan. Both employer and employee must contribute to the CPP. This amounts to 4.95% of income (employer/employee) up to $40,000.00 per year.
- CRA
- Canada Revenue Agency - Previously referred to as CCRA (Canada Customs and Revenue Agency) and prior to that Revenue Canada.
- Dependent
- Dependents of an Eligible Employee are defined as follows:
- A spouse who is either:
- legally married to the Employee, or
- living with the Employee (If Travel Medical Insurance applies, cohabitation must have existed for the past 12 consecutive months) and is publicly represented as the Employee’s spouse or partner
- Any financially dependant member of the employee’s household with whom the employee is connected by blood relationship, marriage or adoption
- A spouse who is either:
- Employee
- The definition of employee can be extremely complicated, but the principal factors considered by CRA are:
- Does the individual collect a wage?
- Does the business remit payroll taxes (income tax & CPP) on behalf of the individual?
- Are payments made to the individual deductible from the business income?
- Is the nature of the services performed consistent with the standard applied to employees?
- Fixed annual benefit level
- See "Benefit Levels".
- Fixed annual reimbursement level
- See "Benefit Levels".
- Health Professional
- One who practices in accordance with the professional standards set up by the health professionals organization and recognized by a governing jurisdiction.
- Insurance
- An insurance plan encompasses the following:
- an undertaking by one person,
- to indemnify another person,
- for an agreed consideration,
- from a loss or liability in respect of an event,
- the happening of which is uncertain.
- IT Bulletin
- Interpretation Bulletin from CRA.
- Medical Expense Tax Credit (METC)
- The METC is tax relief provided by CRA that applies to individuals who have sustained significant medical expenses for themselves or certain of their dependants. For 2005, the credit equals 16 per cent of qualifying medical expenses in excess of the lesser of $1,844 or 3 per cent of net income.
Example
Net Income $30,000 with qualifying expenses of $2100.
900 (3%) versus 1,844
2100 - 900 = 1200
0.16 x 1200 = METC of $192 - Plan year
- Fiscal year.
- Professional Corporation (P.C.)
- A corporation specifically formed for one of the following types of professions:
- Chartered accountants
- Certified general accountants
- Lawyers
- Health professionals regulated under the Regulated Health Professions Act
- Social workers and social service workers
- Veterinarians
This type of corporation will usually have the person's name, followed by the term "professional corporation". An example of a professional corporation's name would be "John Smith Professional Corporation".
- Shareholder Benefit
- CRA now states that where all employees of a corporation are shareholders, the corporation's contribution to a PHSP will be considered a non-taxable employee benefit and deductible to the corporation if the PHSP is part of a reasonable remuneration package. Of course, what is "reasonable" to an owner-manager may not be reasonable to Revenue Canada, but at least it is a step in the right direction. Where there are other employees, their position is unchanged. Equivalent coverage must be extended to the non-shareholder employees. This does not mean equal coverage.
An example of equivalent coverage would be 3% of net income. 3% of the owner's income may not be equal to 3% of a full time employee, but the coverage would be considered equivalent.