HSA Tax Resources
Health Spending Accounts (HSA) are tax-tools which help a small business owner to take control of their medical expenses. These CRA-approved plans are closely related to tax planning principles and are best explained by looking at your company structure.
Health Spending Accounts for a business with 1 or more arm’s length employees:
An HSA is an affordable addition to your employee benefits package. Employees can choose how, when, and where to spend their 100% tax free allowance through the plan. On the other hand, the employer can choose how much and to who they designate these allowances to. Employees cannot spend more than the designated limit by the employer. This plan offers flexibility for the employee and cost control for the employer.
Features of a HSA for employee benefits:
It transfers the value from the employer directly to the employee, instead of losing money to a premium or deductible
It is easy to understand and use - fund the plan and the employee gets reimbursed tax free after a claim
The value of a HSA is never lost in an insurance premium
There’s no expense for the employer until a claim is made by the employee for an eligible health or dental bill
When the employee claims, they’re reimbursed directly for 100% of the claim, tax-free, up to their benefit allowance
The employee can claim all their health and dental bills as needed. They pick what medical treatments matter to them.
Health Spending Accounts for a business with NO arm’s length employees:
Health Spending Accounts are best explained in a different way for a single person business / business with spouse.
In this case, an HSA turns your after-tax personal medical expenses into before-tax business deductibles (through your business).
As a business owner, you receive income from your corporation. In Canada, we have a progressive tax structure. Meaning the more income you make, the more the government takes. Your marginal income tax rate will have a significant effect on the total cost of your medical expenses. Your marginal tax rate is the combination of your provincial and federal tax rate.
For example: if you earn $100,000 in Alberta, you would have to gross roughly $1.78 to bring home $1.00 after-tax. $0.78 of your gross $1.78 (or 43%) would be taxed, leaving you with $1.00 after-tax.
An HSA plan allows you to pay for medical expenses through your company, effectively eliminating the marginal tax (43% in the above example) on medical expenses. This can equate to thousands in savings.
You qualify for this type of HSA if you:
Own an incorporated business
Have T4 income
Have medical expenses
What is eligible in a Health Spending Account?
One of the great benefits of an HSA is the freedom it provides through the extensive range of eligible expense (Full List). You are able to claim 100% of your child's dental braces. These types of expenses, along with a thorough list of qualified medical practitioners, procedures, and medical devices help make a Health Spending Account an attractive choice for the small business owner.
Unlike many traditional insurance plans, an HSA offers 100% coverage on a wide range of expenses...even the expensive ones. Does your son need physiotherapy? Does your spouse need a new pair of glasses? Or maybe laser eye surgery? Maybe you want to get an MRI? Rest assured, all of these are eligible expenses with a Health Spending Account.
You can even claim your spouse's premiums if they are a member of a traditional insurance plan. Premiums contributed to a non-government insurance plan are an eligible expense with a Health Spending Account!
Do you have unpaid portions that are not covered from your spouse's plan? Not a problem - the remaining amount of an expense is eligible with a Health Spending Account.
Prescription drugs, massage therapy, and hearing aids are all eligible expenses too. If you are traveling to the sun on your upcoming vacation...pick up a pair of prescriptions sunglasses so you can read on the beach (the sunglasses are eligible). Sore feet from that long hike or fishing trip? Pay a visit to your friendly Podiatrist as all of their services are eligible expenses.
Download the Beginner's Guide to Health Spending Accounts for an individual:
If you are a business with employees, download the guide below: