What Is a Health Spending Account (HSA) in Canada?
Learn how this flexible, tax-efficient benefit helps manage medical costs
A Health Spending Account (HSA) is a tax-advantaged way to pay for healthcare expenses not covered by provincial insurance or traditional private plans. Popular among small business owners, incorporated professionals, and some employees, an HSA reimburses you for eligible medical and dental expenses using pre-tax dollars.
In effect, it turns out-of-pocket costs into tax-free benefits, reducing your total healthcare burden while giving you greater control over how funds are used.
How an HSA Works
An HSA functions as a reimbursement program. You pay for an eligible health expense up front, then submit a claim through your HSA provider or administrator. Once the claim is approved, the HSA pays you back — usually through a direct deposit.
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Employers or incorporated individuals fund the HSA
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You choose which eligible expenses to submit
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Reimbursements are not taxed as income
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There are no premiums or deductibles, just an annual spending cap
HSAs are often offered as a complement to group benefits or as a stand-alone solution for business owners who want flexibility without traditional insurance.
Tip: If you are incorporated, setting up an HSA allows your corporation to pay for personal medical expenses with pre-tax corporate dollars — a major tax-saving strategy.
What You Can Use It For
An HSA covers a wide range of health-related costs, as defined by the Canada Revenue Agency (CRA). This includes:
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Prescription drugs
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Dental care and orthodontics
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Vision expenses like glasses and contact lenses
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Chiropractor, physiotherapy, massage therapy
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Mental health services, including psychologists and counsellors
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Fertility treatments and other specialized services
Because the list is tied to CRA guidelines, it is broader than many private plans and includes some services not traditionally covered by workplace benefits.
Note: Cosmetic procedures, gym memberships, and over-the-counter supplements without prescriptions are generally excluded, even if health-related.
Who Should Consider an HSA?
HSAs are especially valuable for:
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Incorporated business owners looking to withdraw money tax-efficiently
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Professionals with variable or high out-of-pocket health costs
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Employees whose workplace plans have limited or no coverage for paramedical services
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Families wanting more flexibility in how health benefits are used
It can also serve as a top-up for traditional group plans, covering expenses once your annual limit or deductibles are reached.
Annual Limits and Plan Design
Most HSAs have an annual limit that is either set by the employer or calculated based on a percentage of the employee’s salary. For incorporated professionals, this limit is often based on what is reasonable and consistent with CRA expectations. Some plans allow unused amounts to carry forward to the next year, while others have strict use-it-or-lose-it policies.
| Feature | Typical Range or Design |
|---|---|
| Annual reimbursement | $500 to $10,000+ depending on the plan or role |
| Coverage | Any eligible CRA-listed medical expense |
| Roll-over options | Varies — some allow carry-forward of unused funds |
| Tax treatment | Tax-free to employees, tax-deductible to the corporation |
Caution: The CRA requires that HSAs be structured as a formal benefits plan. If you are self-employed but not incorporated, you generally cannot set up an HSA for yourself. In these cases, alternatives like a Private Health Services Plan (PHSP) or personal health insurance may be more appropriate.
A Smart Tool for Flexible Health Planning
A Health Spending Account offers one of the most efficient ways to manage health expenses — especially when used strategically. It allows you to claim a wide variety of services while optimizing taxes and customizing care for your needs. Whether you are a business owner or an employee looking to stretch your benefits further, an HSA can add real value to your financial and wellness strategy.