
For Sole Proprietors
For sole proprietors, navigating medical expenses can be a challenge. Many resort to dipping into their hard-earned individual income to cover these costs. While this approach might seem straightforward, there’s a smarter way to navigate the tax landscape while safeguarding you and your family’s health and financial security.
A group benefit program provides cost stability by transforming unpredictable medical expenses into a consistent monthly premium, effectively mitigating the financial impact on individuals. Premiums paid through a group benefit plan are considered tax-deductible business expenses, offering a reduction in the annual tax liability.


We’re Insurance Experts
How ABC Insurance can Help
Sole proprietors have unique needs that require an advisor with a deep understanding of group benefits and taxation. Our team is here to help you navigate your group insurance needs, offering direct assistance every step of the way. We support our advisors with the training and resources they need to understand the intricacies of sole proprietors, ensuring you receive a tax-efficient group benefit program.
Optimize Your Financial Strategy for Medical Expenses
Opting for a group benefit plan as a sole proprietor is a strategic leap towards securing both your health and finances. By deducting premiums from your business income, you’re optimizing your financial strategy in a way that benefits both your business and personal finances. No longer will you need to tap into your personal income to manage medical expenses; this approach empowers you to streamline your coverage while minimizing the tax load on your earnings.

Managing Medical Expenses Personally
For when you’re doing it alone
The Medical Expense Tax Credit (METC) is an important tax benefit that allows individuals to claim eligible medical expenses on their income tax return. However, there are specific criteria and limitations associated with this tax credit. One of the key limitations of the METC is the income threshold. To claim the tax credit, individuals must have their eligible medical expenses exceed a certain threshold. This threshold is calculated as either a fixed dollar amount, which can change annually, or a percentage of the individual’s net income, whichever is lower.
The METC is a valuable tool for deducting health expenses. However, for sole proprietors, leveraging business deductions combined with a comprehensive benefit program offers a more significant tax advantage. By making a benefit program the primary means of covering medical expenses, not only can businesses enjoy the benefits of deductions, but they also optimize their tax advantages. This approach positions the METC as a secondary means of deducting costs, providing a comprehensive and tax-efficient strategy for health expense management.


Managing Medical Expenses as a Business
For when you’re doing it together
As a sole proprietor, navigating the realm of tax deductions is crucial for optimizing your financial strategy. One avenue that often goes overlooked is the significant advantage offered by group benefits plans in covering medical expenses. Rather than relying solely on personal medical expense tax credits and personal income, enrolling in a group benefits plan can provide substantial tax deductions.
Tax Impact: Group Benefit Premiums vs. Medical Expense Tax Credit
Group Benefit Premiums
Client Profile
- Sole Proprietors income : $50,000
- Group Benefit Premiums : $3,300
- Medical Expenses : $2,000
How Deductions are Calculated
- The sole proprietor deducts the group benefit premiums from their gross income reducing their taxable income From $50,000 to $46,700
- Gross Income ($50,000) – Group Benefit Premiums ($3,300) = Taxable Income ( $46,700)
How Premiums Deductions are Applied
- The Sole Proprietor applies their deducted taxable income to calculate their tax lability of $10,721
Taxable Income ( $46,700 ) x Marginal Tax Rate ( 0.23) = Tax Owed ($10,721) - The Sole Proprietor applies their deducted taxable income to calculate their CPP at $5,137
Taxable Income ($46,700 ) x Marginal Tax Rate ( 0.11) = Tax Owed ( $5,137)
How Deductions Benefit the Employer
The Sole Proprietor has quickly and simply, deducted the group benefit premiums from their income and reduced their income form calculating taxes
- The Sole Proprietor has exchanged their medical claims for Insurance premiums to cover the medical expenses and create a tax deduction there is no need to calculate the tax credit deductible or tax credit amounts.
- By transferring medical expenses to group benefit plan and deducting the premiums, the sole proprietor’s tax liability reduces to $15,858.
Tax Owed ($10,721) + Employee CPP Contribution ($5,137) = Tax liability ( $ 15,858) - Tax liability $15,858
The sole proprietor saves $ 1,067 more using a group benefit program than the METC
Expense Tax Credit
Client Profile
- Sole Proprietors income : $50,000
- Group Benefit Premiums : N/A
- Medical Expenses : $2,000
How Deductions are Calculated
- The Sole Proprietor’s taxable income remains the same as $50,000
Taxable Income ( $46,700 ) x Marginal Tax Rate ( 0.23) = Tax Owed ($10,721) - The Sole Proprietor applies their full taxable income to calculate their tax liability of $11,500
Taxable Income ( $50,000) x Marginal Tax Rate ( 0.23) = Tax Owed ( $11,500) - The Sole Proprietor applies their full taxable income to calculate their CPP at $5,500
Taxable Income ($50,000) x Marginal Tax Rate ( 0.11) = Tax Owed ( $5,500)
Medical Expenses are Applied
The Sole Proprietor must calculate the deductible for their medical expense tax credit and the amount of credit which will be applied
- First The sole proprietor’s must calculate their tax credit deducible for the year which is $1,500
Taxable income ($50,000) x deductible (3%) = total amount eligible - Secondly The sole proprietors must calculate the amount of the expense greater than the deductible to claim in this case $500.00
Amount of expenses ($2,000) – deducible(1,500) = $500 - The sole proprietor’s must calculate the amount of their tax credit received in this case $ 75.00
Medical Expenses ($500) x Credit Rate (0.15) = $75 - The sole proprietor applies the tax credit to their taxes owed reducing their tax payable in this case to $11,425
Tax Owed ( $11,500) – Medical Expenses Tax Credit ( $75) = Adjusted Tax Owed ( $11,425) - The employer Then adds their CCP contributions to their Adjusted tax owed to calculate their full tax liability of $16,925
Tax Owed (S11,425) + Employee CPP Contribution ($5,500) = Tax liability ( $ 16,925)
How Deductions Benefit the Employer
- By maintaining medical expenses personally and applying the medical expenses tax credit, the sole proprietor’s effective tax liability reduces to $16,925.
- Tax liability $16,925.
The sole proprietor spends $ 1,067 more using the METC than a group benefit program
Comparing Individual and Group Benefit Health Insurance Policies
Individual Health Insurance Policies
Characteristics
- Owned by the Applicant/Insured
- The Individual Insured has Control Over the Policy Coverage
- Fully Portable
- Claims adjudication by the insurance company’s claims department
- Capacity to customize the policy to the Insured
- Fairly rigid maximum coverage levels
- Depending on plan design deductibles may apply
- Co-insurance usually applies
Underwriting
- Usually Fully Underwritten at the time of application
- Pre-existing conditions will typically be excluded by a rider at time of policy issue
Premiums
- Premiums are Based on the underwriting characteristics of the insured
- Premiums are Relatively high compared to group policy
Taxation
- No cost sharing option premiums are 100% paid by the Insured
- Premiums qualify as a medical expense tax credit
- Benefits are Tax Free
Group Benefit Health Policies
Characteristics
- Owned by Sponsor of the group plan
- Plan member has some control over coverage selected but not over the master contract
- Coverage terminates if the plan member leaves the group
- Claims adjudication by the insurance company’s claims department
- Fairly customizable but subject to the limitations of the master contract
- Levels of coverage generally higher than for individual policies
- Depending on plan design deductibles may apply
- Co-insurance usually applies
Underwriting
- Simplified underwriting for basic coverage – potential full underwriting for enhanced or additional coverage
- Because there is Simplified underwriting, pre-existing conditions are generally covered by the plan
Premiums
- Based on the generic makeup of the group as a whole and the claims history of the group
- Generally lower than for an individual policy
Taxation
- Premiums may be paid 100% by an employer, employee or shared
- Premiums paid by the employer are deductible for the employer and do not constitute a taxable benefit for the employee (except in Québec)
- Benefits are tax-free
Plan Your Benefits
Finding an Advisor
As a sole proprietor, choosing the right advisor is crucial due to your unique business structure and tax regulations. An expert advisor understands the intricacies of group benefits for sole proprietors and can design a tax-efficient benefits package tailored to your needs.
Choosing the Right Plan
Crafting a comprehensive benefit plan for sole proprietors’ balances needs, costs, and sustainability, aided by expert guidance. Effective plan design involves understanding your unique needs, customizing coverage to balance comprehensiveness and affordability, and strategically managing costs for long-term sustainability.
Not sure yet? Let us help.
