Health Spending Accounts in Ontario
A health spending account lets your business pay for health and dental expenses with pre-tax dollars, with a cost you control. We connect Ontario owners with licensed advisors who set them up correctly.
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What Is a Health Spending Account?
A health spending account, often called an HSA, is a way for a business to pay for health and dental expenses for employees, and in many cases for the owner, with pre-tax business dollars. The business sets an annual amount per person, employees submit eligible expenses, and the plan reimburses them.
In Canada, health spending accounts are structured as a private health services plan (PHSP) under the Income Tax Act. When set up properly, the cost is a deductible business expense and the reimbursements are generally not taxable to the employee.
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How a health spending account works
The basics
An HSA is simple to run once it is in place.
The business chooses an annual amount for each employee
Employees pay for an eligible expense and submit the receipt
The plan reimburses the employee
The business pays the claim plus an administration fee and applicable taxes
What an HSA can pay for
Eligible expenses generally follow the medical expenses the Canada Revenue Agency allows for the medical expense tax credit. That typically includes prescription drugs, dental work, vision care, paramedical practitioners and medical devices, as well as the cost of other health and dental premiums.
Why owners like it
You only pay for claims that are actually made, up to the limit you set, plus the administration fee. There is no premium for unused coverage, which makes the cost predictable and easy to budget.
Who a health spending account suits
HSAs work in several different situations.
Incorporated owners with employees
Owner employees can generally participate when the plan is offered on a similar basis to arm’s length employees and they are actively involved in the business. A corporation with only one shareholder employee and no other staff needs careful review, since that plan may not qualify.
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Sole proprietors and partners
Self-employed individuals who are actively engaged in the business can deduct PHSP costs within limits set out in section 20.01 of the Income Tax Act, as long as the business is their main source of income or their other income is under $10,000.
- Without enough arm’s length employees in the plan, the deduction is limited to $1,500 each for you, your spouse and household members 18 or older, plus $750 for each household member under 18
- If at least half of the people covered are arm’s length employees, the limit is tied to what those employees receive
Small teams
For a business that is not ready for a full group plan, an HSA offers real value to employees at a fixed maximum cost per person.
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Top up to a group plan
Paired with group benefits, an HSA covers deductibles, co-payments and expenses above the plan maximums.
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What a health spending account costs
The cost is the claims your team makes, up to the annual amounts you choose, plus an administration fee that is usually a percentage of claims, and applicable taxes. Common annual amounts range from a few hundred dollars to a few thousand dollars per employee.
You set the limit
Choose an amount per employee or per class of employee, such as owners, managers and staff, as long as the classes are reasonable.
Pay as claims happen
There is no fixed premium for unused room. If no one claims, the business pays little or nothing that month.
Carry forward rules
Unused amounts can often be carried forward for a limited period, depending on the plan and CRA rules.
Health Spending Account FAQs
Is a health spending account tax deductible?
For a business, a properly structured health spending account is generally a deductible expense. For self-employed individuals the deduction is subject to the limits in section 20.01 of the Income Tax Act. Confirm your situation with your accountant.
Are HSA reimbursements taxable to employees?
Reimbursements from a properly structured private health services plan are generally not taxable to employees and are not subject to CPP or EI.
Can I set up an HSA if I am the only employee of my corporation?
It needs careful review. A plan for a sole shareholder employee with no other staff may not qualify as a private health services plan. An advisor and accountant can suggest the right structure.
What is the difference between a health spending account and a wellness account?
A health spending account covers eligible medical and dental expenses and is generally tax free to employees. A wellness or lifestyle account covers things like fitness and is a taxable benefit.
Can I combine an HSA with a group plan?
Yes. Many businesses use an HSA to top up a traditional group plan and give employees flexibility.
What to expect from a benefits advisor
A licensed advisor handles the details so you can make a clear decision.
1Discovery call
Share who needs coverage, what matters most and your budget. For businesses, bring your current plan and renewal if you have one.
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2Plan design
Your advisor recommends coverage levels and cost sharing that fit your needs, and explains the trade offs in plain language.
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3Compare insurers
Your advisor gathers quotes from multiple insurers and compares price, coverage and service side by side.
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4Enrol and support
Once you choose, your advisor handles the application and enrolment, and stays available for claims questions and renewals.
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