Health Spending Accounts
1. Tax treatment of Health Spending Accounts
The general thrust of Paragraph 6 (1) of the Income Tax Act is to
include in employment income the value of all benefits received or
enjoyed in respect of an employee’s employment. However, there
are a number of specific exceptions, many of which can be
described as benefits relating to the health and welfare of the
employee such as registered pension funds or plans, deferred
profit sharing plans, supplementary unemployment benefit plans,
the standby charge for the use of an employer’s automobile,
employee benefit plans and employee trusts.
Canada Revenue Agency’s Interpretation Bulletin IT-85R2
describes the specific characteristics of a Health and Welfare
Trust. These mandatory characteristics are as follows:
a) The funds of the trust cannot revert to the employer or be
used for any purpose other than providing health and welfare
benefits for which the contributions are made;
b) The employer’s contributions must not exceed the
amounts required to provide these benefits;
c) The employer’s contributions cannot be made on a
voluntary or gratuitous basis. They must be enforceable by the
trustees should the employer decide not to make the payments
required;
d) The trustee or trustees must be able to act independently
of the employer. The employer must not have control over the
use of the funds meaning that the beneficiaries of the trust must
have direct claim against the trustees and not through the
employer.
The Health Spending Account (HSA) is a specific form of a Health
and Welfare Trust set up by an incorporated employer exclusively
for the purpose of covering Health and Dental Care expenses of
his employees.
Where the above requirements are met, the contributions to the
HSA made by an employer using the accrual method of
computing income, are deductible as business expense in the
year in which the legal obligation to make the contributions arose.
The employees do not receive or enjoy a taxable benefit at the
time the employer makes a contribution to the HSA. The benefits
paid by the trustee to the employees from the HSA at the time of
claim for health and dental expenses are also not subject to tax.
The unspent funds by an employee can be carried forward
indefinitely and can be used even after the employee lives the
employer who have set up the HSA.
2. Health and dental expenses covered through an HSA
As mentioned above, the Health Spending Account is a type of
Health and Welfare Trust. Unlike all Employee Group Benefits
Plans available on the Canadian market which represent
insurance plans, the HSA does not have annual limits for every
type of medical expense (dental, hospital, vision, practitioners
etc.), does not have deductibles, does not have co-insurance and
most importantly does not limit the types of medical expenses
covered. The HSA provides every employee with a specific
amount of money (there’s no maximum) per year that is available
to cover all types of health and dental expenses, including all
types of dental work (crowns, bridges, braces etc.), glasses and
contact lenses, fertility drugs, cosmetic surgeries, hair
transplants, laser eye surgeries, experimental drugs and
treatments, nursing home or attendant care and many others.
The only requirements are:
used even after the employee lives the job, as mentioned above.
In summary the Health Spending Account is a perfectly legal way
to cover your and your dependants’ medical expenses with before
tax money if the account is properly set up according to the
requirements of the Income Tax Act and Regulations.
You can set up the Health Spending Account of your corporation
by clicking “Contact” on the navigation bar on the left. Please pick
“Health Spending Account” from the drop-down list, choose the
most convenient for you way to be contacted (telephone, fax or
email). You may even suggest convenient time for an
appointment in the field left for “Questions, comments or
feedback”.
The general thrust of Paragraph 6 (1) of the Income Tax Act is to
include in employment income the value of all benefits received or
enjoyed in respect of an employee’s employment. However, there
are a number of specific exceptions, many of which can be
described as benefits relating to the health and welfare of the
employee such as registered pension funds or plans, deferred
profit sharing plans, supplementary unemployment benefit plans,
the standby charge for the use of an employer’s automobile,
employee benefit plans and employee trusts.
Canada Revenue Agency’s Interpretation Bulletin IT-85R2
describes the specific characteristics of a Health and Welfare
Trust. These mandatory characteristics are as follows:
a) The funds of the trust cannot revert to the employer or be
used for any purpose other than providing health and welfare
benefits for which the contributions are made;
b) The employer’s contributions must not exceed the
amounts required to provide these benefits;
c) The employer’s contributions cannot be made on a
voluntary or gratuitous basis. They must be enforceable by the
trustees should the employer decide not to make the payments
required;
d) The trustee or trustees must be able to act independently
of the employer. The employer must not have control over the
use of the funds meaning that the beneficiaries of the trust must
have direct claim against the trustees and not through the
employer.
The Health Spending Account (HSA) is a specific form of a Health
and Welfare Trust set up by an incorporated employer exclusively
for the purpose of covering Health and Dental Care expenses of
his employees.
Where the above requirements are met, the contributions to the
HSA made by an employer using the accrual method of
computing income, are deductible as business expense in the
year in which the legal obligation to make the contributions arose.
The employees do not receive or enjoy a taxable benefit at the
time the employer makes a contribution to the HSA. The benefits
paid by the trustee to the employees from the HSA at the time of
claim for health and dental expenses are also not subject to tax.
The unspent funds by an employee can be carried forward
indefinitely and can be used even after the employee lives the
employer who have set up the HSA.
2. Health and dental expenses covered through an HSA
As mentioned above, the Health Spending Account is a type of
Health and Welfare Trust. Unlike all Employee Group Benefits
Plans available on the Canadian market which represent
insurance plans, the HSA does not have annual limits for every
type of medical expense (dental, hospital, vision, practitioners
etc.), does not have deductibles, does not have co-insurance and
most importantly does not limit the types of medical expenses
covered. The HSA provides every employee with a specific
amount of money (there’s no maximum) per year that is available
to cover all types of health and dental expenses, including all
types of dental work (crowns, bridges, braces etc.), glasses and
contact lenses, fertility drugs, cosmetic surgeries, hair
transplants, laser eye surgeries, experimental drugs and
treatments, nursing home or attendant care and many others.
The only requirements are:
- The treatment must be performed by a Licensed Medical
Practitioner in the respective province, and - The drugs must be prescribed by a Licensed Medical
Practitioner and dispensed by a Licensed Pharmacist or a
Licensed Medical Practitioner.
used even after the employee lives the job, as mentioned above.
In summary the Health Spending Account is a perfectly legal way
to cover your and your dependants’ medical expenses with before
tax money if the account is properly set up according to the
requirements of the Income Tax Act and Regulations.
You can set up the Health Spending Account of your corporation
by clicking “Contact” on the navigation bar on the left. Please pick
“Health Spending Account” from the drop-down list, choose the
most convenient for you way to be contacted (telephone, fax or
email). You may even suggest convenient time for an
appointment in the field left for “Questions, comments or
feedback”.
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| Health and Welfare Trusts as Employee Health Services Plans |
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