Health Spending Account

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A Flexible and Tax-Advantaged Benefit

A health spending account lets your business reimburse employees for eligible medical and dental expenses in a tax-efficient way. In Canada, it’s set up as a private health services plan. You choose a yearly amount for each employee. Then, employees submit claims for eligible expenses, such as dental work, glasses, prescriptions, or physiotherapy, and get reimbursed. As a result, it’s a flexible, affordable benefit for businesses of any size, including owner-only corporations.

Health spending account for business owners and employees

How a Health Spending Account Works

  • Set an annual amount: you decide how much each employee, or class of employees, can claim each year.
  • Employees claim expenses: they submit receipts for eligible medical and dental costs through a plan administrator.
  • Reimbursement: the plan pays the claims, plus a small administration fee.
  • Tax treatment: the business generally deducts the cost, and employees generally receive reimbursements tax-free.

Eligible expenses generally follow the medical expense rules in the Income Tax Act. To check how specific benefits are taxed, see the CRA’s guide to taxable benefits.

Benefits of a Health Spending Account

  • Flexibility: employees can use it for a wide range of eligible expenses, not just a fixed list.
  • Cost control: you only pay for claims that employees actually make, up to your set limit.
  • Tax efficiency: it turns after-tax personal costs into a deductible business expense.
  • Works alongside other plans: it can top up a group plan or stand on its own.
  • Employer branding: it shows you care about your team’s health.

How Nova Star Can Help You

Our experienced consultants can help you with:

  • Plan design: we set annual amounts and employee classes that suit your business.
  • Choosing an administrator: we compare providers on fees and service.
  • Employee education: we explain clearly how to use the account.
  • Combining plans: we show how a health spending account can work with group or cost plus benefits.

As with any tax matter, your accountant should confirm how the rules apply to your business.

Invest in Your Employees' Health

A health spending account helps your employees take charge of their health costs while keeping your budget predictable. Contact Nova Star Insurance Consultants today to learn more.

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Nova Star advisor reviewing insurance documents with clients