[ Back Up ] [ Travel Insurance TAX TIPS ] [ Pre-Existing Conditions ] [ Subrogation ] [ Cdn. Travel Insurance Quotes ] [ US. Travel Insurance Quotes ] [ Expatriate Insurance ] [ Travel Insurance FAQ ]
Travel Insurance Tax Tips*
It is not widely known that travel insurance is tax deductible. And although
the individual allowance is quite small, some interesting strategies are
emerging for taking full tax advantage.
Ten years ago, when travel insurance was relatively inexpensive, the tax
treatment of travel insurance premium was not a consideration in financial
planning.
Now, with premiums for long range plans measured in thousands, not hundreds
of dollars tax treatment should form part of your buying decision.
In most respects, travel health insurance and domestic health and dental
insurance are treated similarly by Revenue Canada. Which is to say it
constitutes a 'pre-paid medical expense'
The key differences are in the area of non-medical benefits provided by
travel insurers such as trip cancellation or baggage insurance.
Additionally, these non medical benefits may trigger provincial sales taxes.
As a result many insurers separate these benefits (and premiums) to simplify
tax reporting. As a Snowbird, it makes sense to do the same i.e. purchase
travel health insurance separately from trip cancellation coverage.
(Most industry experts agree that 'stand alone' baggage insurance is NOT a
good investment)
The simplest tax benefit is available to all individual Canadian taxpayers.
If medical expenses for the year exceed a base threshold amount, then
the expenses are deductible at the lowest marginal tax rate 17%.
For the purposes of illustration and to keep the math simple, we use 17%. In
fact it's very slightly less than that because the threshold has to be satisfied
before the deductions kick in.
This means that the after tax cost of $1000 of insurance premium is $ 830.
It's not a huge amount of money to save, but it offsets the cost of having a tax
professional prepare your returns.
One other thing that tax impacts is how to evaluate the cost of coverage, and
acceptable risk when considering deductibles.
An example:
5 months coverage $0 deductible = $1000 (net $830)
5 months coverage $500 deductible = $800 (net $664)
Net Savings = $166
In the event of a claim, the deductible would generate medical expenses. In
other words the $500 nets out after tax to $415.
So the evaluation is: Is it worth it to me to have a guaranteed savings of
$166 vs. the possibility of being out of pocket $415 ?
Everyone has different risk tolerances, so that's answered on an individual
basis and in our example the deductible is quite small so the tax impact is
small. But for large deductibles the after tax cost can't be ignored.
If you have a close relationship with a corporation or are self employed.
Then you have more flexibility when it comes to tax planning.
The simplest strategy is to accept travel health insurance as part of your
payment/benefits package.
To the corporation or sole proprietor, the cost is fully deductible. However,
receiving this benefit can trigger personal income tax for the individual Snowbird
(get professional help if you are going to do this)
Health Spending Accounts
One interesting strategy which is gaining popularity is group benefits
program called a 'health care spending account'. They need to be set up properly
to abide by the proper regulations, but the basic principal is as follows:
A discretionary amount is set aside in trust at the beginning of the
employment year.
This amount can be used by the employee throughout the year to pay for
elective medical supplies and services (the definition of health services is
extremely broad)
The virtue of this approach is that the employer still gains the full
deduction, but because the discretionary amount set aside is taken "from
the top" of the individual's employment income.
...the elective health services are paid using pre tax dollars! A substantial
savings
To be fair, setting up one of these programs is not all that simple and you
will need an insurance agent or broker with group benefits experience to help.
But it does make sense if your travel insurance premiums are high and/or if
there are some elective procedures you have been considering.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
*The need for professional advice
This article was written based on the best available information, and
provided for general information purposes only. It is no substitute for
professional advice.
You should consult a financial planner, a tax specialist, or a group benefits
expert before deciding on your personal tax/travel insurance strategy.
As you know, many of these professionals can easily be contacted through Snowbird.Net
Resources:
Revenue
Canada, Insurance Brokers, Financial
planners, Accountants
