CRA Rules & Regulations for Health Spending Accounts (HSAs)
Eligible Medical Expenses
Health Spending Accounts (HSAs) are a great way to cover a variety of health expenses with pre-tax dollars. According to the Canada Revenue Agency (CRA), eligible expenses include prescription drugs, dental services, vision care, physiotherapy, chiropractic services, and more. For a full list of eligible expenses, click here.
Annual Contribution Limits
Unlike RRSPs or TFSAs, HSAs do not have a fixed annual contribution limit. Instead, the CRA uses a “reasonableness” test to ensure contributions are fair and not excessive.
At Coastal HSA, we follow this rule by limiting annual HSA credits to 25% of an employee’s gross T4 salary. For example, an employee earning $60,000 per year would have a maximum HSA credit of $15,000.
Canada Revenue Agency and HSA Eligibility
HSAs are offered by employers as a benefit for their employees. Shareholders can also participate, but they must be employees receiving T4 income. To comply with CRA rules, HSAs should always be offered on a “reasonable basis”.
Here are four key guidelines to ensure compliance:
- Offer HSAs to employees, not shareholders only. Benefits must be tied to employment, not ownership.
- Equitable treatment of shareholders and non-shareholders. Benefits should reflect total compensation as employees, not as shareholders. Solely shareholder benefits are taxable and will disqualify the HSA.
- Consistency among employees. Employees with similar roles, responsibilities, and tenure should receive the same annual HSA credit.
- Stay within the 25% limit. The HSA credit cannot exceed 25% of an employee’s gross T4 salary.
HSAs are a powerful tool for supporting employee health while staying tax-efficient.
Interested in setting up an HSA? Learn more here: Coastal HSA.
