How does a Health Spending Account Rollover work?

By: Updated: May 19, 2021

A Health Spending Account for small businesses in Canada has several requirements in order to properly qualify.  One of those requirements is the Health Spending Account rollover. Specifically, an HSA cannot rollover perpetually.

Element of Risk

To meet the conditions set forth by CRA, an HSA must contain an element of risk.  The risk element is satisfied within a qualifying HSA by including a spending or benefit limit that must be used within a specific time period.  Without some benefit amount being stipulated, the HSA would not provide a reasonable degree of risk in order to meet the definition provided for in subsection 248(1) of the Act and would be considered a taxable benefit. That fact is the plan would not qualify for tax free health benefits if annual limits were not in place.

The Health Spending Account Rollover

In a typical HSA, each classification of employee will receive a spending account with a predetermined limit for each plan year.  The unused portions of the spending account can rollover into the following plan year.  At the end of the second plan year, any unused portions from the first plan year are forfeited – meaning access to that benefit cannot be used. The forfeited amounts still belong to the plan owner and can be withdrawn at any time.  Funds not used by the employee are returned to the employer.

Example for a small business with staff

A small business has 5 employees.  One employee is the owner and receives $10,000 per year through the HSA.  One employee is a manager and receives $5,000 per year.  Three full time employees each receive $2,500 per year.

In the first year, the manager only claims $2,000.  The remaining $3,000 rolls over into the second year - giving the manager an $8,000 limit for the second year.  If, for example, no claims are made in the second year, the $3,000 portion that rolled over would be forfeited.  This does not mean the employer loses the funds as all funds belong to the employer at all times.  Rather, it means the employee loses the opportunity to claim the rolled over amount.  


Example for an incorporated professional

A 45 year old incorporated professional business owner in Canada with a spouse and two children.  The business owner receives an annual limit of $15,000 per plan year. At the end of the first plan year, the owner has claimed $6,000 for herself and her family. The remaining $9,000 is rolled over into the second plan year.

In the second plan year, the owner receives a fresh $15,000 and $9,000 from the previous year. By the end of the second plan year, the owner makes a claim for $8,000.  The remaining $1,000 carried over from the first year is forfeited.  $15,000 will carry over from the second plan year and an additional $15,000 will be accessible for the third plan year for a total of $30,000. 

How will a Health Spending Account for small business owners in Canada work for you?

Health Spending Accounts have been adopted by Canada’s small business community as a viable and cost effective alternative to traditional health insurance.  You’ll receive an affordable, full coverage, and easy to use option with a Health Spending Account.  


Download the FREE Guide to Health Spending Account for a small business with employees:

Download Beginner's HSA Guide for a small business with employees


Related Reading:

What's covered in a Health Spending Account?

How does a Health Spending Account work for a small business in Canada?

Write off 100% of your medical expenses

Are you an incorporated business owner with no employees? Learn how to use a Health Spending Account to pay for your medical expenses through your corporation: 

Download the HSA Guide for Incorporated Individuals

Do you own a corporation with employees? Discover a tax deductible health and dental plan that has no premiums:

Download the HSA Guide for a Business with Staff

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