What is a Lifestyle Spending Account (LSA) and how does it work?

By: Updated: March 29, 2022

These are fairly new employee benefits designed to encourage employees to maintain and improve overall wellness. They can be used to attract and retain outstanding employees by reimbursing them for the cost of a wide range of personal development and wellbeing activities. For the employer, they can be a great way of growing productivity in the workplace. Read on to learn more about these lifestyle benefits.


What is a Lifestyle Spending Account (LSA)?

An LSA is a fully customizable employee benefit. An employer can choose the activities, products and services the company wants to cover. Then the individual employee can spend the funds in their account as they wish, submitting the receipts for reimbursement.

In our healthcare system, the emphasis is on treating illness rather than prevention. An LSA proactively encourages people to focus on wellness and improving their overall physical and mental health. According to a 2020 Statista survey of Canadians, 86 percent say eating healthier is important and 84 percent want to reduce stress.


How does a Lifestyle Spending Account (LSA) work?

For an employer, the first step is to decide how much you want to put into this personal spending account. It could be $500 per year per employee. You don’t have to provide coverage to every employee, but from a team morale viewpoint it would be wise. If you offered an LSA only to the managers, it might result in lower productivity from everyone else.

Next, you must decide what wellness activities and services you will cover. You can choose them on your own or you can conduct an employee survey to see which lifestyle benefits will be popular.

Then you must determine how you will administer the LSA. You could do it yourself but some employees may be reluctant to have you know their choices of wellness activities. Instead, a benefits company can take the administrative burden off your shoulders. Shop around to see who offers the best rates for administering an LSA.

Finally, make sure that employees are aware of the personal spending account and how it works. Encourage them to participate for their own wellness. And remind them that the funds in the LSA disappear at the end of the year – it’s a use it or lose it benefit.

Once the LSA is operational, staff simply go online to submit their claim and receipts. The administrator provides their reimbursement within a few days.


What are the eligible expenses in a Lifestyle Spending Account?

The beauty of an LSA is that it is fully customizable. You can select the areas that are of the greatest interest to you and your employees. Here are some examples:

  • Fitness classes and equipment
  • Gym memberships
  • Health assessments
  • Financial counselling
  • Estate planning
  • Dietitian services and meal planning
  • Personal development courses, such as public speaking or stress management

Or you can tap into services that let employees manage their lives with less hassle. These could include:

  • Child care
  • Pet care
  • Elder care

As we indicated, the list of benefits under an LSA is totally flexible. So, check with your employees to see which ones will boost morale and productivity.


LSA Advantages and Disadvantages

The key advantages of this personal spending account are:

  • It lets your employees choose how to spend their wellness dollars
  • It’s easy to administer
  • You can control the amount of coverage

However, an LSA does have one key disadvantage:

  • It is a taxable benefit: This means that the amount spent will be included on each employee’s T4 slip at the end of the year. They will have to pay tax on the benefit.


Differences between a Health Spending Account and Lifestyle Spending Account

The primary difference is that a Health Spending Account only covers medical expenses that are recognized under Canada’s Income Tax Act. This includes dental fees, prescription drugs, eyeglasses and services like physiotherapy. These are all focused on treatment and illness.

On the other hand, a Lifestyle Spending Account enhances wellness and prevents illness. For example, by encouraging people to stay fit and keep their weight at a reasonable level, they can prevent heart disease and manage diabetes.

Another key difference is the focus on preventative measures. An LSA helps both the staff and the employer by developing more enthusiastic and productive team members. “Researchers studied a wellness program and found that all employees who participated increased productivity by one day per month,” says the website Zenefits.


It's about wellness

These personal spending accounts are a relatively new employee benefit. If you are an employer, you have the chance to offer something special to prospective and current employees. While an LSA can be claimed as a company expense, it is a taxable benefit for employees.


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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