Beware – Not All Health Spending Accounts Are Legal

May 27, 2021by Lisa Philip

Revenue Canada is starting to seriously crack down on Health Spending Accounts (HSA) that are viewed as a “Shareholder Benefit” without having any risk involved in the HSA plan design or the administration of the HSA plan.

HSA’s have been allowed by the CRA since 1982 but they must act in the “nature of insurance” in order to qualify as a 100% tax deduction to the business and 100% tax free to the beneficiaries.

If you currently have an HSA plan where you go out and spend money on a medical procedure, and then come back to your accountant, or the administer of your HSA plan, and submit the receipts, and then your corporation is billed and you get your money back….this is viewed in the eyes of the CRA as a Shareholder Benefit. This means you must add whatever money you received back as a taxable benefit.

In order to qualify as a tax-free benefit to the beneficiaries of the HSA plan their MUST be some sort of “risk” involved in the setup of the plan and how the plan is administered. If you re-read the paragraph above, I think you would agree that there was no risk involved, hence it is viewed by the CRA as a “taxable benefit”.

There is a better way…..for the past 8 years we have been offering an HSA plan that does have a level of risk associated with it and therefore it is onside from a CRA perspective.

In order to implement the HSA plan that we offer, you must have a corporation, and you must decide upfront how much money you want to corporately contribute for the next year….so there is a cap on spending, and this equates to a “level of risk” and therefore qualifies in the eyes of the CRA.

If you would like to learn more about how to set up a proper HSA plan, that would be available to anybody related to you by blood or marriage, please visit The Prosperous Dentist’s website or check out their YouTube page.

Lisa Philip