Lifestyle spending accounts
A flexible benefit your employees spend on what matters to them, within the categories you choose.
- You choose what it covers
- fitness, family, learning and more
- A predictable cost
- you set the amount each year
- Adds to your other benefits
- alongside an HSA or group plan
Lifestyle spending accounts
How an LSA works through the plan year.
You set an annual amount for each employee and decide what it can be used for. Employees spend on what matters to them, submit claims, and are reimbursed from their balance.
Start of the plan year
You set the amount and the categories
The full amount is available on day one. New hires can be prorated.
Chart: the 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 what happens to unused creditsAt year end, you choose what happens to unused credits
- 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
How reimbursements are taxed
Unlike a health spending account, an LSA is a taxable benefit for the employee.
- For the employeeEach reimbursement is added to taxable income, so income tax, CPP and EI are deducted through payroll.
- For the employerReimbursements are a deductible business expense.
Illustration only. The amount, eligible categories, proration and year-end rules are set by the employer in the plan.
What it covers
What an LSA can cover.
Common categories include these. You choose which ones your plan covers.
Fitness and recreation
- Gym memberships
- Fitness classes
- Sports equipment
Family leisure
- Museums and attractions
- Family activities
- Day camps
Wellness
- Alternative therapies
- Health monitoring devices
- Weight loss programs
Transportation
- Transit passes
- Parking
- Bike commuting
Learning and development
- Courses and tuition
- Conferences
- Books and supplies
Examples only. The categories and what qualifies in each are set in your plan.
Setting it up
What you decide.
An LSA is set up around a few choices you make. You can change them at each plan year.
How much
The annual amount for each employee. It can differ by employee class, such as management and staff.
What it covers
The categories employees can spend in.
Who joins partway
Whether new hires get the full amount or a prorated one.
What happens at year end
Unused credits are forfeited, carried forward, or can cover last year’s expenses.
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.
Cost
What it costs.
The credits you fund
The amounts you set for each employee, paid out only as claims are made.
An administration fee
Depending on the provider, a percentage of claims or a flat annual fee. We help you choose the model that suits you.
Payroll
Reimbursements are taxable to the employee, so they run through payroll.
Is it right for your business?
Who it suits.
May suit you if
- You have employees you want to attract and keep.
- You want a benefit that goes beyond health and dental.
- You already have an HSA or group plan, and want to add to it.
- You want a fixed, predictable cost you control.
Something else may fit better if
- It’s just you, in your own corporation. An LSA has no tax advantage for an owner.Health spending accounts
- You want to cover health and dental costs tax-free.Health spending accounts
Frequently asked questions
All questionsWhat is a lifestyle spending account?
It’s an employer-funded account that reimburses employees for lifestyle and wellness costs in the categories you choose, such as fitness, family activities or learning. You set the annual amount. LSAs are also called wellness spending accounts or personal spending accounts. Unlike a health spending account, reimbursements are taxable to the employee.
What expenses can be covered under a lifestyle spending account?
You choose which categories your plan covers. Common ones include fitness and recreation, family leisure, wellness, transportation, and learning and development. What qualifies in each category is set in your plan.
Are lifestyle spending account funds taxable to the employee?
Yes. Reimbursements are a taxable benefit for the employee: each one is added to their income and goes through payroll like regular pay. For you, the employer, the cost is a deductible business expense, and you pay your share of CPP and EI on the reimbursements, as on regular pay.
How much do employers put into an LSA?
There’s no typical amount. Every employer is different: you set an amount that fits your budget and goals, and it can differ by employee class, such as management and staff. We can help you decide what makes sense.
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.
Related articles
All articles- Health spending accounts5 minute readHealth spending accounts: should your HSA be separate from your group benefits plan?When it makes sense to keep a health spending account with your group benefits plan, and when to set it up separately.
- Health spending accounts5 minute readIntroducing flexible spending accounts: a tailored employee benefits solution for your businessHow a flexible spending account lets employees split an employer-funded amount between health and lifestyle expenses.
- Lifestyle spending accounts5 minute readThe comprehensive guide to lifestyle spending accounts (LSAs) in CanadaHow a lifestyle spending account works, what it can cover, and how it’s taxed for your employees.
Related to lifestyle spending accounts
- Health spending accounts Pay health and dental costs through your business.
- Employee group benefits Health, dental and other benefits for your employees.
- Business-owned life insurance Life insurance owned by your company, for protection and planning.
- 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.