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Who can use a Health Spending Account?

Posted by Alden Hui on May 25, 2020
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Health Spending Accounts are plans for small business owners and their employees to reduce their medical expenses. In the case of a single owner only, the owner can turn their after-tax personal medical expenses into a before-tax business expense. In the case that the business has employees, the employees receive these funds tax-free as a reimbursement for their medical expenses.


Basically, Health Spending Accounts are built for an incorporated small business to reduce their worker's medical expenses by providing cost-efficient health and dental benefits. Keep in mind, there are some rules and exceptions. 

Are dependants eligible in a Health Spending Account?

Yes, you and your dependants can make claims within the Health Spending Account. The amount you can claim depends on the plan type, but the entire amount is shared between the family. 

How are dependants defined? (in terms of a Health Spending Account)

Dependants are defined as your legal spouse and unmarried, unemployed dependent children, including natural, adopted and step-children. Children of your common law spouse may also be considered an eligible dependant if living with the plan holder. In order to be considered an eligible dependant you must be claiming them on your personal income tax return.

Dependent children are eligible for benefits until the age of 21. Exceptions may be made in the case of full time students. If you declare a disabled or dependent adult on your personal income tax return, they may also be considered for eligibility.

Should I use a Health Spending Account if I already have health insurance?

Unlike typical health insurance plans, a Health Spending Account offers 100% coverage on a wide range of expenses. There are no premiums, restrictions, or deductibles. 

Best of all, a Health Spending Account can work in conjunction with a health insurance plan (if you or a spouse chooses to keep insurance) Premiums contributed to health insurance and expenses not reimbursed by the insurance plan are both eligible expenses in a Health Spending Account.   

Can any type of small business get a Health Spending Account?

Incorporated businesses are eligible for a Health Spending Account regardless if they do or do not have arm's length employees. On the other hand, sole proprietors are only eligible for a Health Spending Account if they have at least one arm's length employee. 

Can small business owners receiving only dividends (from the company) get a Health Spending Account?

A Health Spending Account is deemed by CRA as an employee benefit, therefore, someone who is only receiving dividends is not typically considered an employee. It is recommended to pay yourself in at least some T4 in order for the CRA to recognize you as an employee (and therefore, become eligible for the plan).  

In conclusion, a Health Spending Account covers many popular and expensive medical expenses such as prescription drugs, massage therapy, hearing aids, prescriptions glasses, physiotherapy. By using the plan, small business owners and their employees can save thousands of dollars on medical expenses. 

 

To continue your research on Health Spending Accounts, download our FREE Beginner's Guide:

beginner's guide to health spending accounts HSA 2020 eligible expenses

 

Related reading:

Common misconceptions about Health Spending Account costs in Canada

An Explanation of Health Spending Account Taxes by Province

Top 5 Health Spending Account Frequently Asked Questions

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

 

Topics: Health Spending Accounts, hsa