Eligible Medical Expenses
Let’s drive into the CRA Rules & Regulations for Health Spending Accounts. The CRA provides a comprehensive list of eligible medical expenses that can be claimed through an HSA. These expenses include prescription drugs, dental services, vision care, physiotherapy, chiropractic services, and more. Click here for the full list.
CRA Rules & Regulations for HSAs
Annual Contribution Limits
Unlike Registered Retirement Savings Plans (RRSPs) and Tax-Free Savings Accounts (TFSAs), HSAs do not have specific annual contribution limits. Instead, the CRA imposes a “reasonableness” test on HSA contributions. Contributions made by employers on behalf of their employees must be considered reasonable and not excessive. To abide by this rule, at Coastal HSA the annual HSA credit cannot be more than 25% of an employee’s gross salary. So if an employee makes $60,000 per year, then their max HSA credit is $15,000 per year.
Canada Revenue Agency (CRA) and Health Spending Account Eligibility
HSAs are offered as a benefit to employees by their employers. Shareholders can also have an HSA; however, they must be employees and should have T4 income. The CRA Rules & Regulations guidelines stipulate that HSAs should be offered to employees on a “reasonable basis”.
Here are 4 guidelines to ensure compliance with the CRA:
1. Provide Health Spending Accounts exclusively to individuals in their capacity as employees of the company.
2. Both shareholder and non-shareholder employees should receive benefits that correspond to their total compensation as employees, not as shareholders. A solely shareholder benefit is taxable and would disqualify the HSA.
3. Employees with similar duties, responsibilities, and length of employment must receive the same amount of HSA credit.
4. An HSA cannot exceed 25% of someone’s gross salary.
