# Health Spending Account - Corporation



## davext (Apr 11, 2010)

Has anyone heard of setting up a Health Spending Account to pay for health benefits? I'm self-employed and I'm the only employee in my corporation but I don't know of anyone that has set this up before.

http://en.wikipedia.org/wiki/Health_Spending_Account


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## GeniusBoy27 (Jun 11, 2010)

*Hsa*

I have a health spending account being a physician, but it was set-up by the Ontario Medical Association. It basically allows for $400 of spending, but there's a taxable benefits.


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## davext (Apr 11, 2010)

I'm not a physician but thanks for your input.

It's also not supposed to be a taxable benefit according to that wiki page. 

Anyone else?


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## MoneyGal (Apr 24, 2009)

uuuugh. Searching cobwebby recesses of my brain...I actually have some experience with these as a former advisor. (Also...I am on vacation...)

You will need an accountant and an insurance broker/provider - the accountant to run the numbers with you (as in, would this be cost-effective for you?) and a broker/provider to set up the account. 

Here's my one piece of advice: don't set up the account without running the numbers first. 

Also - these things must, if I recall correctly and my info is still valid, be sold in conjunction with a life insurance policy. You will need to (check this) and price it in.


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## the-royal-mail (Dec 11, 2009)

I don't think mine is taxable for the simple reason that I pay a fee off my cheque for extended health benefits which include the HSA.


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## kcowan (Jul 1, 2010)

the-royal-mail said:


> I don't think mine is taxable for the simple reason that I pay a fee off my cheque for extended health benefits which include the HSA.


Any benefits paid out will be taxable.


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## MoneyGal (Apr 24, 2009)

kcowan said:


> Any benefits paid out will be taxable.


No, that's the whole point of these things: the employer can get a 100% deduction and the benefit can be entirely tax-free to the employee. My brain is not dusty enough to have forgotten the basics, set out in circular IT-529 from the CRA. 

Here's section 14 of that circular:

_One option that may be found in a Flex Program is a secondary health care plan (sometimes called a "health care spending account" or a variation of that term). These plans are comprised of individual employee accounts that provide for the reimbursement of eligible medical and dental expenses as defined by the terms of the plan. A health care spending account may qualify as a private health services plan provided that it meets the criteria set out in the current version of IT-339, Meaning of "Private Health Services Plan." If it does not qualify as a private health services plan, the amount of any benefit received out of the plan will be taxable to the employee._

Here's IT-339 for reference. 

Here's a more generic reference on the topic. 

Again, if you are going to do this, speak with an accountant and THEN set it up with a provider.


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## MoneyGal (Apr 24, 2009)

Duh. My post did not make clear that benefits paid to employees via a private health services plan are tax-free. However, IT-339 makes that clear in section 1:

_1. Contributions made by an employer to or under a private health services plan on behalf of an employee are excluded from the employee's income from an office or employment by virtue of subparagraph 6(1)(a)(i)._


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## Cal (Jun 17, 2009)

I checked with my accountant about his a few years ago, basically for me (relatively young, not married, no kids) it didn't make sense at the time.

Not sure on your situation, but as MG stated, check with your accountant, I am sure that they will be able to advise you on this one.


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## GeniusBoy27 (Jun 11, 2010)

I think mine is taxable on the portion that's paid for by the government to the HSA. i.e. the difference between the $400 HSA per year and the $50 co-pay that I pay each year = $350, if I use the full amount of the HSA.


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## MoneyGal (Apr 24, 2009)

The term "Health Spending Account" has no meaning for CRA purposes, which is part of the reason there's some confusion in this thread. 

A HSA can be a flexible employee benefit and, if it meets certain criteria, can provide tax-free benefits to employees. If you trace through the CRA circulars I linked above, you will see what I mean. 

Not every "Health Spending Account" will provide a tax-free benefit to employees. However, in order to get the most bang for your buck, if you are the sole employee of a corporation (and you have consistent high medical expenses), you can establish a flexible employee benefit which meets the definition of private health services plan and provides a tax-deductible expense for the corporation and a tax-free benefit to the employee. There are other employee benefits that are also referred to as Health Spending Accounts but which do not provide a tax-free benefit to the employee, as this thread demonstrates.


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## kcowan (Jul 1, 2010)

Does anyone understand why we taxpayers would subsidize some HSAs and not others? Would this lead to us subsidizing dental plans or private rooms?


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## MoneyGal (Apr 24, 2009)

It's an anomaly. In "CFP school" tax-free health benefit plans were routinely referred to as "the last tax-free benefit" companies/corporations can provide for employees. 

However, the expenses have to be listed on the CRA list of eligible medical expenses...so yes to many kinds of dental services, and no to private rooms (unless medically necessary. But do you know what it takes to actually get a room in a hospital these days?!).


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## davext (Apr 11, 2010)

Lots of interesting information, I'm glad that there are so many knowledgeable people in this forum! Thanks for the links too!


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## Doug (May 31, 2009)

PreTax Health charges a 10% administration fee. The last time I looked, Brock charged a 5% administration fee. Administration fees are only one part of a PHSP, and there may be compelling reasons to chose a PHSP provider other than Brock. My connection to Brock is that I get my PHSP through them. The last time I checked, they were the lowest cost provider. If another company now claims that title, I would be interested in hearing about that.


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