Health spending accounts
Pay for health and dental costs through your business, for yourself and your employees.
- Tax-free for your people
- reimbursements aren’t taxable income
- Deductible for your business
- claims and fees are a business expense
- Pay only for what’s used
- no premium for coverage nobody uses
Health spending accounts
How the money moves.
A health spending account (HSA), also known as a private health services plan (PHSP), lets your business pay eligible health and dental costs for owners, employees and their eligible dependants, with pre-tax dollars.
For your business: claims are a deductible expense, and you pay only for what’s used.
For your employees: reimbursements are not taxable income.
Illustration only. Eligible expenses follow CRA rules for medical expenses. Each claim is billed with an administration fee, plus any applicable provincial taxes. Fees vary by provider.
Through the year
How an HSA works through the plan year.
You set an annual amount for each employee, and tax rules decide which health and dental expenses qualify. Employees submit claims, and you’re billed as each one is paid.
Start of the plan year
You set the amount. Tax rules set what qualifies.
The full amount is available on day one. Amounts can differ by employee class, and new hires can be prorated.
Chart: the available balance is full at the start of the plan year and steps down with each of three claims, leaving an unused balance at year end.
You choose one carry-forward optionAt year end, you choose one carry-forward option
- No carry forwardUnused credits are forfeited
- Credit carry forwardUnused credits roll into next year
- Expense carry forwardThis year’s expenses can be claimed next year
Carry forward is limited to one year.
How reimbursements are taxed
Unlike a lifestyle spending account, HSA reimbursements aren’t taxable for the employee.
- For the employeeReimbursements are tax-free. Nothing is added to the employee’s income.
- For the employerClaims, administration fees and applicable taxes are a deductible business expense.
Illustration only. Eligible expenses follow the Canada Revenue Agency’s rules for medical expenses. The amount, employee classes, proration and carry-forward option are set in the plan.
Setting it up
What you decide.
An HSA is set up around a few choices you make. You can change them at each plan year.
How much
The annual amount for each person. It should be reasonable for their role, and we help you set it.
Who’s covered
Owners, employees and their eligible dependants. Amounts can differ by employee class, such as management and staff.
Who joins partway
Whether new hires get the full amount or a prorated one.
What happens at year end
No carry forward, a credit carry forward, or an expense carry forward, limited to one year.
Eligible expenses
What an HSA can pay for.
An HSA covers the same expenses that qualify for the medical expense tax credit. These are the ones people claim most.
Everyday care
- Prescriptions
- Prescribed drugs and medications, insulin and injection supplies
- Dental care
- Cleanings, fillings, crowns, dentures, braces and other orthodontics
- Vision care
- Glasses, contact lenses, eye exams and laser eye surgery
Practitioners and treatment
- Licensed practitioners
- Chiropractor, physiotherapist, registered massage therapist, psychologist, dietitian and more
- Maternity and family care
- Midwife and obstetrician care, fertility treatment, speech therapy and home care
- Hospital and medical services
- Private room upgrades, ambulance, x-rays, vaccines and anesthetist fees
Equipment and coverage
- Medical equipment and supplies
- Hearing aids, CPAP machines, orthotics, braces and diabetic supplies
- Accessibility and medical travel
- Home modifications for mobility, and travel for care that isn’t available locally
- Health coverage premiums
- Premiums for health, dental, travel medical and international medical plans
Have a group plan too? Claim there first, and your HSA can cover what’s left, including deductibles and co-payments. The full list of eligible expenses is set by the Canada Revenue Agency. See the CRA’s list of medical expenses
Cost
What it costs.
The claims
You pay only for claims that are made, up to the amounts you set.
An administration fee
A percentage of claims or a flat annual fee, depending on the provider. We help you choose.
Provincial taxes
In some provinces, taxes apply to claims and fees.
How claims are checked
Providers differ. Some spot-check claims, some don’t check them, and some review every one. We prefer providers that review every claim against the Canada Revenue Agency’s rules, which helps protect the plan’s tax treatment.
HSA or LSA
Two accounts, two different jobs.
Both are funded by the employer and reimburse employees for eligible expenses. What qualifies, and how it’s taxed, is where they differ.
Is it right for your business?
Who it suits.
May suit you if
- You own an incorporated business, with or without staff.
- You don’t have a group plan, or a traditional one doesn’t fit.
- You have a group plan and want to cover what it doesn’t, like deductibles and co-payments.
- You want a predictable, deductible way to pay health and dental costs.
Something else may fit better if
- Your business isn’t incorporated. Sole proprietors fall under different tax rules, and we set up HSAs for incorporated businesses.Health and dental insurance
- You want to offer wellness and lifestyle benefits.Lifestyle spending accounts
- You want insured coverage for large or unexpected claims.Employee group benefits
Frequently asked questions
All questionsWhat expenses can a health spending account (HSA) reimburse?
The same expenses that qualify for the medical expense tax credit, as set by the Canada Revenue Agency, such as prescriptions, dental and vision care, and treatment from licensed practitioners. Your plan’s own rules also apply.
How does a health spending account work for a business owner or employer?
You set an annual amount for each person, which should be reasonable for their role. When you or an employee has an eligible expense, the claim goes to the plan administrator with the receipt. Once it’s approved, the person is reimbursed tax-free, and your business is billed the claim plus an administration fee and any applicable provincial taxes, as a deductible business expense. An HSA works through an incorporated business: sole proprietors fall under different tax rules, with conditions, so speak with your accountant.
What happens if HSA funds are not used?
It depends on the carry-forward option you choose when the plan is set up: no carry forward, where unused credits are forfeited; a credit carry forward, where unused credits move to the next year; or an expense carry forward, where this year’s expenses can be claimed next year. Either kind of carry forward is limited to one year.
Who can be included in a health spending account plan?
Owners, employees and their eligible dependants, in an incorporated business. Each person’s amount should be reasonable for their role, and amounts can differ by employee class, such as management and staff. Sole proprietors fall under different tax rules, with conditions, so speak with your accountant; we set up HSAs for incorporated businesses.
How is an HSA different from traditional group benefits or a lifestyle spending account?
A traditional group plan is insurance: you pay premiums for set coverage, whether or not it’s used. An HSA reimburses eligible health and dental costs up to the amount you set, and you pay only for the claims that are made. A lifestyle spending account covers lifestyle and wellness costs in the categories you choose, and unlike an HSA, its reimbursements are taxable to the employee. Many employers offer an LSA alongside an HSA or a group plan, rather than on its own.
How do I choose an HSA provider?
Providers differ in how they check claims: some spot-check them, some don’t check them, and some review every one. We prefer providers that review every claim against the Canada Revenue Agency’s rules, which helps protect the plan’s tax treatment. We’ll also walk you through each provider’s fees, either a percentage of claims or a flat annual fee.
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Related to health spending accounts
- Lifestyle spending accounts A taxable account for the lifestyle and wellness costs you choose.
- Employee group benefits Health, dental and other benefits for your employees.
- Employee group retirement and savings Group plans that help your employees save for retirement.
- Business-owned disability insurance Keeps your company going if an owner or key employee is disabled.
A question about your coverage? Ask us.
No obligation. We’ll tell you plainly what we think, including when you already have what you need.