Health and Welfare Trusts

In 2003, more than $121 billion was spent for health care in Canada, with 70% of these costs paid for by the publicly funded system. Corporate Canada and individuals picked up the remaining 30%, according to the Canadian Institute for Health Information and Statistics Canada. Health care cost and demand will only keep growing as baby boomers start to retire en masse.

With these new pressures we face in the 21st century, our society is being called upon to find new ways to deliver and pay for the health care Canadians want and need. Canadians and doctors alike have a desire to promote wellness and healthy lifestyles. However, these comprehensive services are often not covered by provincial health care plans. In the past, individuals seeking wellness and cosmetic solutions have had to pay for most of these services out-of-pocket with their after-tax dollars.

But there is a solution for executives, business owners, self-employed individuals and their employees: create a health and welfare trust. Health and welfare trusts are sanctioned by the Canada Revenue Agency (CRA) as tax-avoidance structures. Here a business establishes a trust to pay for the trust member's (and family's) health care costs. Funds placed in the trust by a business are 100% tax-deductible in the year they are contributed – even if the money is not spent in that year. Benefits are non-taxable for the individuals who receive them.

Dr. Rajiv Arya is a dentist practising one day a week and a partner at Arya & Sher Barristers & Solicitors in Toronto. He has been helping both doctors and dentists to incorporate their practices. Dr. Arya says “a necessary precursor for doctors to effectively take advantage of tax-saving strategies that have been available to incorporated business owners for years such as… health and welfare trusts, individual pension plans and retirement compensation arrangements, is to turn their traditional medical and dental practices into private corporations.”

All traditional health care costs, like dental, prescription drugs and vision care are eligible benefits for health and welfare trusts. But a trust can also cover the rest of an individual's costs, such as the following:

  • insurance premiums paid by the executive/employee or the individual's spouse for private health and dental plans;
  • cosmetic dental and medical treatment; ‘ over-the-counter drugs, provided they are prescribed by a physician;
  • drugs for conditions sometimes excluded under conventional plans;
  • facilities and services – special school, alcohol/drug addiction, nursing home care, institution for mental or physical handicap, licensed private hospital, semi-private or private charges in a hospital, care of a person who has been certified as mentally incompetent, care of a blind person, and full-time attendants in a nursing home;
  • laser eye surgery;
  • professional services of a dietician, acupuncturist, psychologist or nutritionist;
  • dental care (preventive/restorative/orthodontic); and,
  • medical equipment and devices.

Dr. Bernd Neu, a plastic surgeon in Toronto, says many patients ask if they can write off their procedures at the initial consultation. Health and welfare trusts can help some inidividuals do this.

For example, let's say the average cost for a facelift is $14,000. Two patients decide to have this procedure done. Both patients own businesses and have top personal marginal tax rates of 46% (Ontario). Patient A plans to pay for the entire procedure with her after-tax dollars.

Patient B has set up a health and welfare trust with her company and plans to pay for the entire procedure through the company's trust. Patient A will have to earn approximately $26,880 of personal income before taxes and $24,916 after she receives her Medical Non-Refundable Tax credit of $1,964 to pay for this cosmetic procedure.

Patient B's company, through its health and welfare trust, will only pay $15,400 for the same procedure ($14,000 for the procedure plus a $1,400 trust administration fee [10%]). This is a completely tax-deductible expense for the company. The saving Patient B receives for setting up a health and welfare trust is $9,516, enough to pay for a Mediterranean cruise to recuperate.

Medical and dental services that go beyond Medicare are usually paid with after-tax dollars. But business owners, including doctors with incorporated practices, can take advantage of the tax savings a health and welfare trust can provide.

Written by Peter Merrick

Peter Merrick, FMA, CFP, FCSI, Instructor at George Brown and Seneca Colleges, President of Merrick Wealth Management, a boutique financial planning, employee and executive benefit consulting firm.

2 Responses to Health and Welfare Trusts

  1. Spot on with this write-up, I honestly believe that this web site needs much
    more attention. I’ll probably be returning to read through more, thanks for the info!

    • I think you have an error in your script “cosmetic dental and medical treatment;” are not covered after CRA changes in 2010 ie cosmetic surgery , cosmetic dentistry ( non medically) necessary treatments were specifically EXCLUDED. Better check your facts out.

Leave a reply