Health Spending Account (HSA) for Business Owners and Small Employers in Canada
A health spending account lets your business pay for health and dental costs that would otherwise come out of your own pocket, after tax. The business reimburses eligible expenses for you and your employees, deducts what it pays, and the reimbursements are generally tax-free to whoever receives them.
The Aeva Health Spending Account is for owners of incorporated businesses and for small employers who want to give their team health benefits without a full group plan. We set it up with you and answer your questions along the way.
How a health spending account works
- 1
Set the yearly amount
The business decides how much each employee, including you, can claim in a year. Employees in the same class get the same amount.
- 2
Pay the cost, keep the receipt
You or your employee pay for an eligible expense, like a dental visit or new glasses, and submit the receipt as a claim.
- 3
Get reimbursed
The claim is reimbursed from the account, generally tax-free to the employee, and the business deducts what it paid.
What an HSA covers
An HSA reimburses expenses that qualify for the medical expense tax credit, as defined by the Canada Revenue Agency. Your spouse and eligible dependants can claim too. Common examples:
- Dental work, including costs above your dental plan’s maximum
- Prescription drugs, including the part your plan does not pay
- Prescription glasses, contact lenses and laser eye surgery
- Physiotherapy, chiropractic and registered massage therapy
- Hearing aids and medical devices
- Deductibles and coinsurance on your health insurance plan
Who the Aeva HSA is for
- Incorporated business owners
- If your corporation employs you, it can pay your health and dental costs through an HSA instead of you paying them from personal income. Consultants, contractors and professionals who have incorporated are the most common fit.
- Small employers
- An HSA gives each employee a set yearly amount to spend on the care they actually use. You know the most it can cost you, and it works on its own or alongside a group plan.
HSA or health insurance?
An HSA is a budget, not insurance. It pays everyday costs up to the amount you set, but it cannot protect you from a large, unexpected bill. Health insurance does that. Many business owners pair an individual health and dental plan for protection with an HSA for the deductibles, coinsurance and costs above plan maximums that the plan leaves behind. You can compare health insurance plans on Aeva in about three minutes.
Health spending account questions
What is a health spending account?
A health spending account (HSA), also called a health care spending account, is a private health services plan your business sets up for its employees. The business reimburses employees for eligible health and dental expenses up to an amount it chooses each year. The business deducts those payments as an expense, and employees generally receive them tax-free.
Can I have an HSA if I own an incorporated business?
Generally, yes. If your corporation employs you, it can offer you an HSA as an employee benefit. The CRA expects the benefit to be offered because you are an employee rather than because you are a shareholder, and to be reasonable compared with what the business would offer an arm’s-length employee. Sole proprietors and partners face additional conditions, so book a call before you set one up.
What expenses does an HSA cover?
Expenses that qualify for the medical expense tax credit under the Income Tax Act. That commonly includes dental work, prescription drugs, prescription glasses and contact lenses, hearing aids, and treatment from licensed practitioners such as physiotherapists, chiropractors and registered massage therapists. It also covers the part of an expense your health insurance plan does not pay, such as a deductible, coinsurance or costs above a plan maximum. Your spouse and eligible dependants can be included.
Are HSA reimbursements taxable?
For employees, HSA reimbursements are generally tax-free federally and in every province except Quebec, where they are a taxable benefit for provincial income tax. For the business, what it pays into the plan is generally a deductible expense.
What happens to money I do not use in a year?
It depends on how the plan is set up. CRA rules allow unused credits, or unclaimed eligible expenses, to carry forward into the next plan year for up to 12 months. Some plans use neither, and unused credits end with the year.
Does an HSA replace health insurance?
No, the two do different jobs. An HSA pays predictable, everyday costs with pre-tax business dollars, up to the amount you set. Health insurance protects you against large, unexpected costs that an HSA balance would not cover, like a long course of prescription drugs or a hospital stay. Many business owners use both: an individual health and dental plan for protection, and an HSA for what the plan leaves behind.
Set up your health spending account
Book a 15-minute call with a licensed Aeva advisor to see whether an HSA fits your business and how to get started.
Book a 15-minute callThis page is general information, not tax advice. HSA tax treatment depends on CRA rules for private health services plans and on your circumstances.