Health Spending Accounts (HSA) are Self-insured Private Health Services Plan (PHSP) benefits
arranged by Employers for their Employees residing in Canada

Canada

Canada is a North American country consisting of ten provinces and three territories. Located in the northern part of the continent, it extends from the Atlantic Ocean in the east to the Pacific Ocean in the west, and northward into the Arctic Ocean...

. Private Health Services Plans are described in Canada Revenue Agency

Canada Revenue Agency

The Canada Revenue Agency is a federal agency that administers tax laws for the Government of Canada and for most provinces and territories, international trade legislation, and various social and economic benefit and incentive programs delivered through the tax system...

 (CRA) Income Tax Bulletin IT-339R2 "Meaning of PHSP" for Health and Dental Care Expenses described in Income Tax Bulletin IT-519R2 "Medical Expenses".

Health Spending Accounts can be utilized to 1. supplement Insured Private Health Services Plans, or implemented as 2. "stand-alone" plans instead of Insured Private Health Services Plans. Private Health Services Plans (which may take the form of Health Spending Accounts) may form part of a Health and Welfare Trust (see IT-85R2) or Flexible Employee Benefit Program (see IT-529).

What is an HSA?

Health Spending Accounts are specified maximum Annual Allocations of funds exclusively for the purpose of health care

Health care

Health care is the diagnosis, treatment, and prevention of disease, illness, injury, and other physical and mental impairments in humans. Health care is delivered by practitioners in medicine, chiropractic, dentistry, nursing, pharmacy, allied health, and other care providers...

 spending. In some Health Spending Accounts, the company makes advance payments (incl. Administration Fees and Taxes) on behalf of Employees, for Health and/or Dental expenses. In other Health Spending Accounts, payments can be made on an "pay as you go" basis.

Eligible Claims are reimbursed to the Employee (must be a bona fide

Bona Fide

Bona Fide is a studio album from rock band Wishbone Ash. It is the first studio album in six years and is the only studio album to feature guitarist Ben Granfelt...

 employee and not just a shareholder

Shareholder

A shareholder or stockholder is an individual or institution that legally owns one or more shares of stock in a public or private corporation. Shareholders own the stock, but not the corporation itself ....

 or unincorporated owner), and are non-taxable benefits for the Employee. Expenses (Claims, Administration Fees and Taxes) are a 100% business deduction for the Employer.

Health Spending Account Restrictions

Health Spending Accounts are not available to unincorporated business owners, as the Canada Revenue Agency (CRA) would view such payments under an HSA as a Taxable transfer of funds, even if a Third Party is used as an intermediate step in the transfer of funds.

Eligible Expenses

Eligible Expenses are medical expenses which would otherwise qualify as medical expenses within (currently) Section 118.2(2) of the Income Tax Act, and as interpreted by the Canada Revenue Agency (CRA) in Income Tax Bulletin IT-519R2 "Medical Expenses". These are the same medical expenses as allowed under the Medical Expense Tax Credit (METC) and can be obtained from the CRA website.

Popularity

Health Spending Accounts are used by Employers to provide Health and/or Dental plans for Employees, in conjunction with insured plans or as standalone plans. All benefits allowed under the Tax Act are allowed, as compared to the restricted benefits and dollar maximums of PHSP included in insured group benefits plans. Health Spending Accounts offer substantial reductions in actuarial, administration, adjudication and marketing expenses compared to insured PHSP, maximizing Employee benefits and reducing Employer cost.

Providers of Health Spending Accounts

Trustees, Third Party Administrators and Insurers provide versions of the HSA to Canadian Employers.
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