What Is a Health Spending Account (HSA)?
A Health Spending Account (HSA) is a flexible, tax-efficient way for Canadian businesses to provide health and dental benefits to themselves and their employees. Instead of paying for traditional group insurance, an HSA allows business owners to use pre-tax corporate dollars to reimburse eligible medical expenses.
With an HSA, you decide how much to allocate each year, and your employees (or you as an owner-employee) decide which health and dental services to spend it on. The Canada Revenue Agency (CRA) recognizes HSAs as a legitimate employee benefit plan, making reimbursements 100% tax-free to employees and 100% tax-deductible for the business.
Who Can Open an HSA in Canada?
Health Spending Accounts can be set up by:
- Incorporated businesses (of any size)
- Non-profit organizations
- Sole proprietorships or partnerships with at least one arm’s-length employee
If you’re an incorporated business owner or professional corporation (e.g., dentist, consultant, or contractor), an HSA lets you cover your family’s health expenses through your company while saving on taxes.
How a Health Spending Account Works
Let’s break it down with a simple example:
Example:
Your employee has a $200 dental bill.
They pay the clinic and submit a claim through Coastal HSA.
You’re billed $200 plus a 6% admin fee and 5% GST on that fee — a total of $212.60.
The $212.60 is a tax-deductible business expense, and the $200 reimbursement is a non-taxable benefit for the employee.
In short, HSAs replace complicated insurance paperwork with straightforward reimbursements that benefit both your business and your team.
Why More Small Businesses Are Switching to HSAs
1. Flexible Coverage
No two employees have the same health needs. HSAs let your team choose from over 100 eligible expenses — from dental cleanings and vision care to massage therapy and mental health services.
2. Tax Savings
Every dollar you contribute is deductible to your business. Reimbursements to employees are completely tax-free. Compared to paying personally after-tax, the savings are substantial.
3. Cost Control
You set the annual allowance and know your maximum exposure upfront. Plus, skip those pesky renewal negotiations with insurance companies.
4. Easy Administration
Coastal HSA provides simple online claim submission and direct deposit reimbursements. New team member? No problem, add them to the plan in less than a minute using the Coastal HSA app.
5. Talent Attraction and Retention
Offering an HSA shows commitment to employee well-being. For small businesses, this can be a big differentiator when recruiting or keeping skilled workers.
CRA Requirements for HSAs
To qualify as a compliant Private Health Services Plan (PHSP) under the CRA, four key rules apply:
- Employee-Only Benefit
The plan must be offered to individuals in their role as employees of the business. - Fairness
Employees with similar roles should receive the same benefit amounts. - Contribution Limit
Annual HSA allocations generally should not exceed 20% of an employee’s T4 income. - Credit Expiry
Unused HSA credits must expire within two years.
Allocating HSA Funds
A common approach is to group employees by role and assign different annual amounts. For example:
| Role | Annual HSA Amount |
|---|---|
| Owner / Manager | $10,000 |
| Assistant Managers | $5,000 |
| Customer Service Agents | $2,500 |
This structure keeps your plan fair and predictable while rewarding leadership responsibility.
Eligible Health and Dental Expenses
HSAs can cover over 100 health, dental, and wellness expenses recognized by the CRA, including:
- Dental exams, cleanings, orthodontics
- Prescription medications
- Vision care (eyeglasses, laser eye surgery)
- Physiotherapy, massage therapy, chiropractic care
- Mental health counselling
- Durable medical equipment
- Fertility treatments and certain medical procedures
Even dependents’ expenses are eligible, letting you support your entire family’s well-being with pre-tax dollars.
For a detailed list, see Approved Health Expenses on the Coastal HSA website.
How to Launch Your HSA plan in 5 Easy Steps
- Create Your Account and Add Employees
Set up your admin account, add employees, and assign each a yearly HSA allowance. - Request Activation
A refundable 10% deposit of your total plan value activates the account. This deposit is used to pay out claims before they are billed. - Employee Setup
Each employee receives a welcome email to log in and get started. - Start Submitting Claims
Employees upload receipts and get reimbursed in 2-5 business days. - Monthly Billing
You’re billed only for claims from the previous month. No claims in a month? Don’t pay a dime.
The Coastal HSA Health Wallet App
The Coastal HSA Health Wallet lets you manage benefits from any device.
- Submit claims in under 30 seconds
- Track balances and reimbursement history
- Receive payments directly to your bank account
It’s health benefits — simplified.
Why Choose Coastal HSA?
At Coastal HSA, we specialize in making health benefits simple, affordable, and fully CRA-compliant for Canadian businesses. Whether you’re a solo incorporated professional or managing a growing team, we help you keep more of your money while investing in health.
Key advantages:
- Transparent, fixed admin fees
- CRA-compliant plan setup
- Fast, paperless reimbursements
- Dedicated support for small business owners
Final Thoughts
Health Spending Accounts are one of the most powerful tools for Canadian small business owners to lower taxes and provide meaningful employee benefits — without the high costs of traditional insurance.
By setting up a Coastal HSA account, you can:
- Pay for personal and family medical expenses using pre-tax corporate dollars
- Offer flexible, modern benefits your team actually values
- Keep your business compliant and financially efficient
Ready to make the switch?
👉 Book a meeting with Coastal HSA or Create your HSA account today.