A simple, tax-effective way for business owners to cover health and dental expenses for themselves and their teams.
Health Spending Accounts let incorporated businesses reimburse eligible medical and dental expenses, with the employer controlling a set annual budget.
What is a Health Spending Account?
A Health Spending Account (HSA) is an employer-funded plan used to reimburse eligible medical and dental expenses.
The employer sets an annual limit, and reimbursements are based on actual expenses incurred rather than insurance premiums.
HSAs are typically structured to meet the definition of a Private Health Services Plan (PHSP) under guidelines set out by the Canada Revenue Agency. Over time, HSAs evolved as a practical way for businesses to administer these rules in a simple, standardized format.
HSAs are often a good fit for:
Business owners of small incorporated companies
Owner-and-spouse corporations
Professional services and contractor-heavy businesses
Companies not ready for a fully insured benefits plan
Small Businesses with 1 to 10 employees
HSAs may not be the best fit for:
Businesses that want broader insurance coverage (e.g. Life, AD&D, LTD, critical illness)
Larger groups that rely on pooled insurance risk to spread costs
Employers looking for fixed monthly premiums
Companies where some employees are consistently high users and others have very low usage, and where risk pooling is important
Who are Health Spending Accounts for?
A practical note:
Many businesses start with an HSA and later transition to a more traditional insured benefits plan as they grow. In some cases, an HSA continues alongside an insured plan as a supplemental benefit for owners and executives only.
How do Health Spending Accounts work?
The employer sets an annual HSA amount for each eligible employee
Employees pay for eligible health or dental expenses
Expenses are submitted for reimbursement through an online platform
Reimbursements are made up to the annual limit set by the employer
A simple example:
Alex has access to a Health Spending Account with an annual limit of $2,000
Alex visits the dentist and pays $1,000, keeping the receipt
Alex submits the expense through the Health Spending Account platform
Alex’s company sends $1,000 (plus administration fee) to the Health Spending Account
Health Spending Account sends Alex $1,000
In this way the expense is transferred from Alex’s personal “after-tax” dollars to Alex’s company “pre-tax” dollars.
The entire HSA expense is a tax deduction for the company.
Optional : Wellness Spending Accounts
Some employers also include a Wellness Spending Account (WSA) alongside their Health Spending Account. While an HSA reimburses eligible medical expenses tax-free, a WSA can allow broader wellness expenses such as:
- Fitness programs, Gym memberships, Personal Training
- Ergonomic workstation equipment
- Outdoor recreational equipment such as ski passes or camping gear
How Health Spending Accounts are funded
There is no setup fee to implement a Health Spending Account, and no requirement to pre-fund or make ongoing monthly deposits.
Health Spending Accounts operate on a pay-as-you-go basis. Claims are reimbursed only when eligible expenses are submitted. For many owner-only or family-run corporations, this means the business simply funds reimbursements as expenses arise.
Some business owners choose to submit expenses as they occur, while others submit receipts all at once, at the end of the year.
Because of this structure, an HSA can often be set up and left unused until an expense is incurred.
What expenses are reimbursed?
PRESCRIPTION DRUGS & MEDICAL SUPPLIES
Prescription medications
Medical devices (e.g. CPAP machines, diabetic testing supplies)
Orthotics and braces
Hearing aids
Mobility aids
MEDICAL & PARAMEDICAL SERVICES
Physician and specialist services not otherwise covered
Physiotherapy
Massage therapy (RMT)
Chiropractic care
Acupuncture
Podiatry / chiropody
Occupational therapy
Speech therapy
Osteopathic care
Naturopathic medicine
Psychologists
Registered clinical counsellors
Social workers
Psychotherapists
DENTAL CARE
Routine exams and diagnostics (including X-rays)
Cleaning and scaling
Fillings
Root canals
Crowns, bridges, and dentures
Orthodontic treatment (ie braces), Invisalign
VISION CARE
Eye exams
Prescription glasses and sunglasses
Contact lenses
Laser eye surgery
PROCEDURES & TREATMENTS
Cosmetic surgery
Fertility related procedures
MRI, Ultrasound, X-Ray treatments
ELIGIBLE DEPENDENTS
Expenses for a spouse
Expenses for eligible dependants, where the plan allows
Helpful clarification:
Health Spending Accounts are designed to reimburse medical and dental expenses. Wellness or lifestyle items are not automatically eligible and require different plan structures.
This list is illustrative, not exhaustive. Eligibility depends on plan terms and individual circumstances.
What Health Spending Accounts are not
Health Spending Accounts are a flexible and tax-efficient tool, but they are not designed to replace every type of benefits arrangement.
HSAs are not:
A traditional insurance plan
A substitute for pooled insurance risk
A guaranteed solution for every business
A wellness or lifestyle spending account by default
A way to reimburse any expense without rules or documentation
HSAs work best when used for medical and dental expenses, with clear plan design and proper administration. Other types of benefits — such as life insurance, disability coverage, or wellness allowances — require different structures.
Disclaimer
This website is provided for general educational purposes only and does not constitute tax, legal, or insurance advice.
Health Spending Accounts are typically structured to meet the definition of a Private Health Services Plan (PHSP) under applicable tax guidance. Eligibility of expenses, tax treatment, and suitability depend on plan design and individual circumstances.
Before implementing any benefits arrangement, businesses should seek advice from qualified professionals to confirm what is appropriate for their situation.