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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?

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    I don't live in BC. But what's the difference between giving you $900 of salary, which they deduct and you pay tax on, and use to pay the MSP, and paying the MSP, which they deduct and you pay tax on? – Kate Gregory Jan 31 '17 at 14:46
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    @KateGregory Your intuition is correct. Canadian income tax is the same on salary as it is on the value of benefits. – Grade 'Eh' Bacon Jan 31 '17 at 17:32
  • @KateGregory I think there's some fine print on this topic, where the employer also has to offer medical benefits in tandem with the MSP benefit, but I couldn't find any official documentation on the topic. Assuming it's just a cash benefit, is there any reason not to simply have my company pay the benefit? – DevNull Jan 31 '17 at 17:40
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I think you are overcomplicating the scenario by assuming a benefit that doesn't exist.

Assume an employee earns 50k, before considering the MSP. The corporation wants to cover the MSP. They have two options: increase the salary to $50,900, or keep the salary the same and pay for the MSP directly. Both options increase the employee's taxable income by $900. Both options decrease the corporation's income by $900. Net tax for each is unchanged.

*Note - I couldn't find any specific reference to the MSP in income tax documentation on either BC Finance's or CRA's website. I am assuming that it is treated as a regular cash benefit, though I am not 100% convinced this is the case. If I am wrong in this please provide a comment below.

  • Given what you've noted above, does it make sense, if I'm the only employee in the corporation, to have the corporation pay MSPs for myself? Instead of me paying $75.00 out of pocket each month, I pay 40% of that amount (in taxes), and the full amount can be deducted against the corporation's gross profits as a cost of running the business. My personal tax liability is increased, but I get a net benefit on something I couldn't normally expense myself, and the corporation gets to expense the cost. – DevNull Jan 31 '17 at 17:46
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    if the corp paid you $900 more they would also "Get to expense the cost" of your salary. It's no different. – Kate Gregory Jan 31 '17 at 17:50
  • @KateGregory Thank you. This was my initial assumption, but I wanted to make sure I wasn't overlooking something blatantly obvious. – DevNull Jan 31 '17 at 18:03

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