Health Spending Accounts (HSA) are becoming more popular offering enhanced coverage and flexibility for employees who want more control over how their eligible health and medical benefits are utilized. HSAs offer substantial reductions in actuarial, administration, adjudication and marketing expenses compared to insured PHSP, maximizing Employee benefits and reducing Employer cost.

What is an HSA?

Health Spending Accounts are specified maximum Annual Allocations of funds exclusively for the purpose of health care spending. In some HSAs, the company makes advance payments (incl. Administration Fees and Taxes) on behalf of Employees, for Health and/or Dental expenses. In other HSAs, payments can be made on an “pay as you go” basis. Eligible Claims are reimbursed to the Employee (must be a bona fide employee and not just a shareholder or unincorporated owner), and are non-taxable benefits for the Employee.

Expenses (Claims, Administration Fees and Taxes) are a 100% business deduction for the Employer. Health Spending Account Restrictions Health Spending Accounts are not available to unincorporated business owners without arms-length employees, as the Canada Revenue Agency (CRA) would view such payments under an HSA as a Taxable transfer of funds, even if a Third Party is used as an intermediate step in the transfer of funds.

Eligible Expenses are medical expenses which would otherwise qualify as medical expenses within (currently) Section 118.2(2) of the Income Tax Act, and as interpreted by the CRA in Income Tax Folio S1F1C1 [5] “Medical Expenses”. These are the same medical expenses as allowed under the Medical Expense Tax Credit (METC) and can be obtained from the CRA website.

Contact us today to learn more about how we can help you with your Health Care Spending Account.