HSA & PHSP Overview - For Accountants
What is a Health Spending Account?
(PHSP context)
Health Spending Accounts are typically structured to meet the definition of a Private Health Services Plan (PHSP) under CRA guidelines. When properly set up, reimbursements are deductible to the corporation and received tax-free by the employee.
CRA Framework (simplified)
To qualify as a PHSP, a plan must generally:
Reimburse expenses eligible under the Medical Expense Tax Credit (METC)
Cover primarily medical expenses (generally 90% or more)
Operate as a reimbursement plan for actual expenses incurred
Be provided to employees and eligible dependants
Based on guidance from the Canada Revenue Agency (CRA) on Private Health Services Plans.
Common Situations
Typical scenarios:
Incorporated business owner receiving T4 income
Owner + spouse - commonly structured
Small incorporated team - scalable
Not typically suitable:
Sole proprietors
Dividend-only compensation
No employer-employee relationship
Tax Treatment - General Overview
When structured as a PHSP:
Reimbursements are generally tax-deductible to the corporation
Benefits are typically received tax-free by the employee(s)
The plan must reflect a legitimate employer-employee relationship
Practical Considerations:
Annual limits should be reasonable relative to compensation
HSAs are typically used as a supplement to compensation, not a replacement
Plan design should be consistent with what a similar employee might reasonably receive
Important Notes:
Eligibility depends on how the business is structured and how individuals are compensated
Situations involving dividend-only compensation may not meet CRA expectations
Specific tax treatment can vary and should be considered alongside the broader compensation structure
Have a specific situation you’d like to discuss?
I’m happy to review a specific scenario or walk through how this may apply.