The 7 Most Important Health Spending Account Rules

By: Updated: July 13, 2017


There are some strict conditions that must be followed to establish a Health Spending Account.

Get the 7 absolute necessities to ensure a Health Spending Account follows the rules sets forth by Canada Revenue Agency (CRA).

1. There must be an employer/employee relationship

Perhaps the most important of all Health Spending Account Rules - section 248(1) states that contributions from an employer for health related matters, received by an employee  are not included in the employees income. This statement confirms there must be that relationship.

2. There must be a contract between the employer and the employee

This is a matter of fact and the contract between the employer and the employee must be written to satisfy the CRA.

3. There must be a contract between the employer and the Administrator of the Health Spending Account

CRA would expect that a disinterested third party administer the plan between the employer and the employee for, among other reasons, to satisfy CRA that a conflict of interest will not arise and contractual conditions will not be conveniently altered.

4. The Health Spending Account must be in the nature of insurance 

Meaning a Health Spending Account must involve a reasonable degree of risk.  It follows that backdating (having an effective date for the plan before a contract has been signed by all parties) a Health Spending Account is not acceptable. A simple analogy is that one cannot insure a burning house.

5. The Health Spending Account must include an annual spending amount

The amount in the annual spending account is decided in the contract between the employer and the employee. If the amount is increased at will, then there is no reasonable degree of risk. This is controlled by the administrator.

6. The Health Spending Account allows reimbursement for specific health care needs 

This is also specified within the written contract and must not change in the current year of the contract. The administrator controls this condition.

7. Business owners are eligible if they also act as an employee

This is true even if there are no other employees in the business. A caveat here is that, if there are other employees, they must be offered and/or be included in the plan.


Get more insight on the fundamentals of a Health Spending Account by downloading our free guide below:

Download Beginner's HSA Guide for an incorporated individual


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