In BC, Canada, one has a monthly medical plan premium (MSP) per adult in a household of at least $75.00 (CAD) per individual per month, and the amount cannot be deducted against one's personal taxes.
However, I've noticed many medium to large companies in Canada simply pay this benefit directly for employees, and the employee is assessed a taxable benefit at the end of the year. So, assuming someone's marginal tax rate is 40%, and he/she is reimbursed the full $900.00 (CAD) per year, he/she owes an additional $360.00 in taxes at year end.
Assuming one owns a small business (sole proprietorship), and a small corporation, would it make sense to offer this benefit through either of the companies to the owner as an employee of the company? The major constraints I can see are:
- In Canada, for a sole proprietorship, the "business" and the "owner" are one and the same, so I don't think it's possible to expense an MSP payment in the first place.
- That leaves expensing through the corporation, which ends up costing the corporation more money, but the employees now only pay the taxable benefit portion of the MSP, rather than the whole amount.
- Additionally, if the benefit is offered to employees and their family members, the employee gains a significant benefit, and the corporation simply expenses this benefit.
Does it make sense, if one owns a small corporation, to simply pay MSP benefits to employees, if the goal is to (legally) reduce the total tax liability of all parties involves?