David Imrie

The health spending account (HSA) is an alternative to traditional group benefits and primarily designed for small business owners. It is a cost-effective method of providing health care benefits to employees. Businesses with as few as one employee are eligible for this account.


Download The Brokers and Planners Guide to Group Health Benefits

In this article, we have listed seven rules set by the Canada Revenue Agency (CRA) that you should keep in mind when establishing a health spending account.

1. Contractual Obligation

An employer-employee contractual obligation should be present to set up an HSA. The contract between the employer and employee should be written as per the rules set by the CRA. Verbal contracts are not satisfactory to open the account.

2. For Employees Only

Remember that the HSA can be opened for employees only. Self-employed individuals cannot open an account for themselves. They are required to buy an insured plan through an insurance company.

Also, for unincorporated businesses, only arm's length employees are eligible for the plan. Business owners can be eligible for the plan but only if they act as an employee and receive a salary.

3. Specific Health Care Needs

The HSA allows employers to reimburse employees for specific health care expenses. For eligible medical expenses, you should read the CRA publication that lists medical expenses that are eligible for credits. You cannot claim medical expenses other than those mentioned on the list.

4. Expenses Recommended by a Licensed Medical Practitioner

Keep in mind that medical expenses should be recommended by a licensed medical practitioner for the HSA. In some cases, proof will be required. In case of any medication, it should be dispensed by a licensed pharmacist or medical professional. You can view the CRA publication for authorized medical practitioners and pharmacists. The CRA has listed practitioners by territory and province.

5. Contract Between Employer and HSA Administrator

Lastly, there should be a contract between the employer and the health spending account administrator. The CRA recommends that the administrator should be a “disinterested” third party. This is important to avoid any conflict of interest when it comes to reimbursement of medical expenses.

Also, an annual spending amount should be mentioned in the contract between the employee and employer. Any alteration in this amount is controlled by the HSA administrator.

If you are a business owner, you should note the rules regarding the health care plan.

The Complete List of CRA Allowable Medical Expenses

David Imrie

Dr. David Imrie founded RHSA Canada in 2009. Dr. Imrie is a medical doctor and former health insurance professional who has a passion for helping small businesses reduce their healthcare costs. As an executive in the insurance industry, he was shocked to find that so many common healthcare services are covered only partially by most insured plans, when employees were entitled to 100% coverage for all prescription drugs, dental services, and other healthcare expenses. Since leaving the insurance industry in 2001, Dr. Imrie committed to using newer technology to develop a better alternative program for small business health benefits.
Find David Imrie on: