Health Spending Account
A health spending account turns your family's dental, vision and paramedical bills into a 100% deductible corporate expense — received tax-free. Standalone, or beside a group plan.
What is a health spending account?
A health spending account (HSA) is a CRA-recognized private health services plan (PHSP): your corporation deposits a set annual limit per employee, medical and dental claims are reimbursed tax-free, and the corporation deducts 100% of claims and fees as a business expense.
Most incorporated owners pay the family's medical bills the expensive way: out of salary or dividends that were taxed first. The Income Tax Act offers a cleaner route. Reimbursements under a properly structured PHSP are excluded from employment income (s.6(1)(a)(i)), and the corporation deducts what it pays. Same dentist, same bill — different door, very different tax result.
Standalone. An HSA does not require any insured group plan underneath it. A corporation — including a one-owner corporation with the right structure — signs up with a plan administrator, sets an annual limit per employee class, and starts running claims. For businesses whose team is too small or too varied for classic group insurance, the HSA is the benefits plan: every dollar goes to actual care instead of premiums for coverage nobody uses.
Add-on beside group benefits. If you already run a group benefits plan, an HSA layers on top to catch what the insured plan doesn't: deductibles and co-pays, the 20% the drug plan didn't cover, orthodontics over the dental maximum, extra paramedical visits. Employers often cap the insured plan at a sane level and let the HSA absorb the overflow — usually cheaper than upgrading the whole insured design.
The eligible list is borrowed from the medical expense tax credit (ITA s.118.2(2)): dental and orthodontics, prescription drugs, eye exams, glasses and laser eye surgery, physiotherapy, psychotherapy and other paramedical practitioners, medical devices, certain travel for treatment — a long list. What's not on it: cosmetic procedures, gym memberships, over-the-counter vitamins. An HSA is a tax mechanism, not a wellness slush fund, and administrators audit claims against the CRA list.
Paying personally means earning the money first. A $3,000 orthodontics bill for an Ontario owner at a 43.41% marginal rate requires about $5,301 of pre-tax salary. The medical expense tax credit gives some of that back — but only at the lowest rate (19.05% in Ontario), and only on the amount above the floor (the lesser of 3% of net income or $2,890 in 2026). At $120,000 of income, that credit is worth about $21 on this bill.
Through an HSA the corporation pays the $3,000 claim plus an 8% administration fee plus taxes — about $3,576 all-in for Ontario — fully deductible, received tax-free. That's roughly $1,704 kept on a single bill. Run your own numbers in LAB 04 — income, province, spend, 2026 rates.
Administration is typically a percentage of each claim — 8% is the figure we use — plus sales and premium taxes that differ sharply by province:
Even Ontario's heavier loadings rarely close the gap: paying personally at a mid-bracket marginal rate costs 55–75% more than the bill itself, while the HSA route costs 8–20% more. The calculator shows the exact crossover for your numbers.
An HSA is only as good as its compliance. The plan must be in your capacity as an employee of the corporation, not as a shareholder — meaning you (or your class of employees) receive limits comparable to what an arm's-length employee in that role would get. Limits are set in advance, per employee class, and must be reasonable against salary. Unused amounts don't roll forward forever: CRA permits a 12-month carry-forward of either unused credits or unclaimed expenses, not both, after which they lapse. And the plan must involve genuine insurance-style risk — pure "pay yourself back whatever you spent, whenever" arrangements have been challenged.
Fair warning
One-person corporations are the audit-sensitive case. CRA accepts HSAs for owner-employees, but the plan must genuinely function as employee compensation — documented limits set in advance, run through a third-party administrator, claims within the METC list. If you're an unincorporated sole proprietor, the deal is much thinner: deduction caps of $1,500 per adult and $750 per child (ITA s.20.01), with conditions. And if your family's medical spend is trivially small, the admin fee can eat the benefit — LAB 04 will tell you that too.
No. An HSA stands entirely on its own — many one-owner and small corporations run an HSA with no insured group plan at all. It also works as an add-on beside a group benefits plan, covering deductibles, co-pays and anything over the insured limits.
The same list as the medical expense tax credit under the Income Tax Act: dental and orthodontics, prescription drugs, vision care, paramedical practitioners, medical devices and more. Cosmetic procedures are excluded.
Yes — claims and administration fees under a properly set up PHSP are fully deductible, and the reimbursement is not a taxable benefit to the employee, provided CRA's conditions are met.
An HSA is not a savings account. CRA permits carrying forward either unused credits or unclaimed expenses for up to 12 months — after that they lapse, so set limits to what your family actually spends.
Book a Tax Diagnostic
The first conversation is free — your situation, our method, and whether we fit. Complex files quote a planning fee up front: you'll know before we start.
// the only variable in this plan that gets more expensive every year is your age