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:
The treatment must be performed by a Licensed Medical Practitioner
in the respective province, and
The drugs, vitamins, nutrition supplements etc., must be prescribed
by a Licensed Medical Practitioner and dispensed by a Licensed
Pharmacist or a Licensed Medical Practitioner.
The unspent money is carried forward indefinitely and can be 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, vitamins, nutrition supplements etc., must be prescribed
by a Licensed Medical Practitioner and dispensed by a Licensed
Pharmacist or a Licensed Medical Practitioner.
The unspent money is carried forward indefinitely and can be 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 Spending Accounts Health and Welfare Trusts as Employee Health Services Plans |
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