By Aiman Attar
Being self employed, which a real estate salesperson or broker essentially is, has a lot of advantages but one of the disadvantages is less access to affordable and flexible group health benefits, to cover expenses not paid by provincial health programs. CREA does offer a health and dental insurance package, underwritten by Manulife Financial, but it’s not cheap. Moreover, while you can cover yourself and your family with this kind of package, what about your employees?
Many candidates need and want benefits and they look for it with prospective employers, so having benefits is a great way to incentivize potential talent. But did you know that the traditional health insurance benefits are not the only option out there?
A Health Saving Account (HSA) is a plan where the employer (that’s you!) funds tax-free medical expenses coverage for each “arm’s length” employee, through a third-party administrator or trustee.
As an example: Broker X funds an HSA at a rate of $2,000/year for each of his six arm’s length employees (an arm’s length employee is someone to whom the broker is not related by blood, marriage, common-law or adoption). Employee Y needs a few physio sessions following a sports injury that are not covered by the provincial health plan and that costs $200, so they pay for it themselves and submit the receipt to the third-party administrator. If approved, the administrator then pays Employee Y the full $200, tax free.
The upside for the broker? They get a 100-per-cent tax deduction of the amount against their gross business income. And by offering HSAs, they can deduct theirs and their family’s qualifying medical expenses against the business income, instead of having to list them as a personal expense.
One caveat: Some HSA administrators require that you purchase an insurance product in addition to funding the HSA. This should raise a red flag for you. This HSA provider is viewing the HSA as a “nice to have” add-on to a standard insurance product. The costs will be significantly higher and potentially limit the spending flexibility that an HSA generally provides, so beware!
How much does it cost a Realtor / broker to offer HSAs?
Third-party administrators of HSA plans make their money by charging a fee to set up the plans, as well as annual fees (in some but not all instances) and transaction fees, usually amounting to about 10 per cent of the claim. Anything more than 13 per cent is too much, so shop around for your HSA provider.
So, for a claim for $1,000 of expenses, the administrator would add the transaction fee of $100, plus sales and premium tax of another $115. The total cost of this claim for the Realtor/broker would be $1,215. That entire amount, however, is deductible.
For a successful broker, these deductions could net very important tax savings. Knowing up front for the year what their benefits coverage expenses are going to be makes accounting and planning easier for the broker.
Which business models qualify for HSAs?
Not every business can qualify to participate in an HSA, according to Canada Revenue Agency. For example, a Realtor who is unincorporated and a sole proprietor (and therefore has no arm’s length employees) cannot use an HSA.
Incorporated businesses can use them for the owner and the employees, even if they only have one employee. Unincorporated businesses can use them as long as they have at least one arm’s length employee.
What kinds of expenses qualify to be paid under an HSA?
Any and all medical expenses that qualify for a medical tax credit. That includes dental, prescriptions, devices required, attendant care and other services, such as physio and chiropractic care.
An employee could not use their HSA for cosmetic procedures of any kind or medications that are available over the counter, amongst others.
This brings me to the only downside to an HSA: it won’t provide enough coverage for a catastrophic medical event. So, while dental cleanings and a new pair of glasses will be covered, a sudden diagnosis of an illness that requires very expensive prescriptions will be beyond the limits of even the best HSA. It’s worth considering and encouraging employees to look at individual critical illness policies for this kind of situation, but that’s a whole other topic.
Do HSAs work for the employees?
In a word, yes. They have the flexibility of being able to cover certain expenses as they see fit, rather than through some prescribed plan, up to the annual funded limit with no deductibles or annual limits on any one service, as is commonly found with group plans (other than the funded limit). The HSA leaves a lot of room for the employee to decide what they need.
Group plans often fail to satisfy everyone in an organization because each employee has different medical needs. While Employee A might need coverage for their daughter’s orthodontia, Employee B might need it for a prescription they need. Having the flexibility to choose is the real advantage of an HSA.
Furthermore, pre-existing conditions and age of the employee are not an issue: everything and everyone is covered.
If you think an HSA is a good option for yourself, your family and your employees, take the time to speak to your accountant about it, to be sure that the third-party administrator that you choose is adhering to all the current tax codes regarding HSAs. Better safe than sorry!
One fact remains: as recruiters, we find it much easier to place employees with Realtors or brokers who offer HSAs than those who don’t. It’s just another piece of the hiring puzzle that can help you to attract the very best in the business.