Best HSA for Small Businesses in Canada (2025 Guide)
By Frontier Team•March 1, 2025•2 min read
Introduction
A Health Spending Account (HSA) is Canada's smartest, tax-efficient health benefit solution tailored for small businesses. Unlike traditional insurance, HSAs offer maximum flexibility and significant tax savings, making them ideal for business owners seeking cost-effective employee health benefits.
Why an HSA is Better Than Insurance for Small Businesses
- Tax Efficiency: Contributions are 100% tax-deductible for employers.
- Cost Control: Businesses set annual budgets, eliminating unpredictable costs.
- Flexibility: Employees choose how to use funds for a wide range of CRA-approved expenses.
| Feature | Health Spending Account (HSA) | Traditional Insurance |
|---|---|---|
| Employer Contributions | Fully tax-deductible | Partially tax-deductible |
| Employee Reimbursements | 100% tax-free | Partially taxable |
| Expense Coverage | Broad range of CRA-approved expenses | Limited by insurance policy |
| Cost Predictability | High (set annual limits) | Variable (premiums can rise) |
How to Open an HSA in Canada in 3 Steps
- Select an Administrator: Choose a trusted third-party HSA provider.
- Define Your Plan: Set clear eligibility criteria and annual budget limits.
- Launch and Educate: Inform employees about eligible expenses and claims processes, then start tax-free reimbursements.
Eligible Expenses Covered by HSAs
- Prescription medications
- Dental care (cleanings, braces, implants)
- Vision care (glasses, laser surgery)
- Paramedical services (massage, physiotherapy)
- Mental health services (therapy)
- Medical devices (orthotics, hearing aids)
- Premiums for private health plans
Tax Benefits Summary
- Employers: Contributions are fully tax-deductible, lowering taxable income without CPP/EI deductions.
- Employees: Receive 100% tax-free reimbursements, unlike salary increases or bonuses.
HSAs for Incorporated vs. Sole Proprietors
- Incorporated Businesses: HSAs are the most efficient way to claim personal medical expenses as tax-free business deductions.
- Sole Proprietors: Require at least one arm's-length employee to qualify; otherwise, the Medical Expense Tax Credit (METC) applies.