What’s the tax advantage of using a Health Welfare Trust?

If you’re self-employed, and do not have dental or medical benefits, then a Health Welfare Trust (HWT) can save you a lot in taxes.

Here’s how it works:

1. Your corporation pays a specified amount (e.g. $5,000) to an Insurance Company that administers the HWT for your company
2. Your corporation will receive a tax deduction for the amount paid and held in the HWT
3. You pay for medical expenses personally (e.g. doctors fees, prescription drugs, etc)
4. You submit a claim to the insurance company and it will reimburse you for your out-of-pocket costs (up to the amount in the HWT, e.g. $5,000). This reimbursement is received tax-free by you.

In substance, you have converted a personal medical expense into a tax deduction for your corporation!

ABOUT THE AUTHOR

ALLAN MADAN

CA.CPA.CGA

Allan Madan is a CPA, CA and the founder of Madan Chartered Accountant Professional Corporation. Allan provides valuable tax planning, accounting and income tax preparation services in the Greater Toronto Area.

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