Canadian HSA vs US HSA: Key Differences Explained

By Frontier Team•February 10, 2026•10 min read

Canadian HSAs and US HSAs share a name but work completely differently. In Canada, an HSA (Health Spending Account) is an employer-funded plan where the business pays for employee medical expenses with pre-tax dollars. In the US, an HSA (Health Savings Account) is a personal savings account tied to a high-deductible health plan. If you have heard the term "HSA" used in both countries and assumed they were the same thing, you are not alone. But the differences matter, especially if you are a business owner, cross-border worker, or just trying to understand your options.

What Is a Health Spending Account in Canada?

A Canadian Health Spending Account is an employer-funded health benefit. The business sets up the plan, decides how much to allocate per employee, and reimburses eligible medical expenses. It is also called a Private Health Services Plan (PHSP), which is the official CRA term.

Here is how it works in practice:

  • The employer funds it. Only the business contributes. Employees do not put their own money in.
  • Reimbursements are tax-free. When an employee submits a receipt for an eligible medical expense, the business reimburses them. That reimbursement is 100% tax-deductible for the business and 100% tax-free for the employee.
  • There is no investment component. The money does not sit in a brokerage account earning interest. It is a reimbursement arrangement, not a savings vehicle.
  • It is not portable. If an employee leaves the company, they do not take the HSA with them. The benefit is tied to the employer.
  • No high-deductible plan required. You do not need any other insurance to set up or use a Canadian HSA.

Canadian HSAs are popular with incorporated small businesses because they give the business owner full control over their health benefit budget while keeping everything tax-efficient.

What Is an HSA in the United States?

An American HSA is a personal savings account that an individual owns and controls. It was created by Congress in 2003 as part of the Medicare Modernization Act, and it is designed to work alongside a High-Deductible Health Plan (HDHP).

Here is how the US version works:

  • The individual owns it. The account belongs to the person, not the employer. You keep it even if you switch jobs.
  • Both employee and employer can contribute. You can put in your own pre-tax dollars, and your employer can also contribute on your behalf.
  • Triple tax advantage. Contributions are tax-deductible (or pre-tax if through payroll), the money grows tax-free, and withdrawals for qualified medical expenses are also tax-free. This is often called the "triple tax benefit."
  • You can invest the balance. Once your balance reaches a certain threshold (typically $1,000-$2,000), you can invest in stocks, bonds, ETFs, and mutual funds, just like a retirement account.
  • Contribution limits apply. For 2026, the IRS limits are $4,300 for individual coverage and $8,550 for family coverage. If you are 55 or older, you can add an extra $1,000 catch-up contribution.
  • You must have an HDHP. You can only contribute to a US HSA if you are enrolled in a qualifying high-deductible health plan.
  • Funds roll over forever. There is no "use it or lose it" rule. Unused money stays in your account year after year.

Side-by-Side Comparison

Feature Canadian HSA US HSA
Also called PHSP, Health Spending Account Health Savings Account
Who funds it Employer only Employee and/or employer
Who owns it Business-controlled benefit Individual-owned account
Tax treatment 100% deductible for business, tax-free for employee Pre-tax contributions, tax-free growth, tax-free withdrawals
Contribution limits No federal limit (must be "reasonable" per CRA) 2026: $4,300 individual / $8,550 family
Investment component No Yes -- can invest in stocks, bonds, mutual funds
Portability No -- tied to employer Yes -- stays with individual
Eligibility Incorporated businesses with arm's-length employees Must have qualifying HDHP
Unused funds Carry forward or expire per plan rules Roll over indefinitely, no expiry
Withdrawal rules Reimbursement only -- cannot cash out Can withdraw anytime (penalty if non-medical before 65)

Key Differences That Matter

Ownership and Control

This is the biggest difference between the two systems. In the US, the HSA belongs to you. You open it, you fund it, you decide how to spend it. Your employer might contribute, but it is your account. If you quit your job tomorrow, the money is still yours.

In Canada, the HSA belongs to the business. The employer sets the budget, decides who is covered, and controls the plan terms. Employees submit claims and get reimbursed, but they do not own an account with a balance they can see or manage. If they leave the company, the benefit ends. This makes Canadian HSAs function more like a US Health Reimbursement Arrangement (HRA) than a US HSA.

Investment Potential

US HSAs have become popular as a long-term wealth-building tool. Because the money grows tax-free and rolls over indefinitely, many Americans treat their HSA as a "stealth retirement account." They pay current medical bills out of pocket, let their HSA balance grow in index funds, and plan to use it in retirement when healthcare costs are highest.

Canadian HSAs have no investment component at all. There is no account balance sitting in a brokerage. The business reimburses expenses as they happen, and that is the end of the transaction. If you are looking for an investment vehicle in Canada, an HSA is not it. For long-term tax-advantaged savings, Canadians have RRSPs and TFSAs instead.

Contribution Limits

The US has strict, IRS-defined contribution limits that change each year. For 2026, those limits are $4,300 for individuals and $8,550 for families, plus an additional $1,000 catch-up contribution if you are 55 or older.

Canada takes a different approach. There is no hard federal cap on HSA contribution limits. Instead, the CRA requires that the benefit amount be "reasonable" based on factors like the employee's income and industry norms. A common guideline is that the HSA benefit should not exceed about 15% of the employee's annual income. This gives Canadian businesses more flexibility to tailor their health budgets, but it also means there is some ambiguity compared to the clear-cut US limits.

Portability

If you are an American with an HSA and you leave your job, retire, or move across the country, your HSA goes with you. The money is yours no matter what.

In Canada, the HSA is tied to your employer. When you leave, the benefit stops. You cannot take it with you, and you cannot cash out the remaining balance. This is one of the tradeoffs of the Canadian model. The tax benefits are excellent while you are covered, but they end when the employment relationship ends.

Common Misconceptions

"Canadian and US HSAs work the same way." They do not. Despite sharing the name "HSA," they are fundamentally different structures. The Canadian version is an employer-funded reimbursement plan. The US version is a personal savings and investment account. Calling them both "HSAs" causes a lot of confusion, especially for people who move between the two countries or read US financial advice that does not apply in Canada.

"You can invest through a Canadian HSA." No. There is no investment account, no brokerage, and no balance to grow. Canadian HSAs reimburse expenses after the fact. If you want tax-sheltered investing in Canada, look at RRSPs or TFSAs.

"Canadian HSAs have contribution limits like the US." Not exactly. The US has specific dollar limits set by the IRS each year. Canada has no fixed federal limit. Instead, the CRA uses a "reasonableness" test. In practice, most providers cap benefits between $10,000 and $15,000 per employee per year, but this is a guideline rather than a legal ceiling.

"You need a high-deductible health plan for a Canadian HSA." No. The HDHP requirement is a US rule only. In Canada, you can set up an HSA whether or not you have any other insurance. You do not need a group benefits plan, a private insurance policy, or anything else. The HSA can stand on its own.

Which System Is Better?

Honestly, each system has real advantages for the people it serves.

The US HSA is a powerful individual wealth-building tool. The triple tax advantage, investment options, and lifetime portability make it one of the best tax-sheltered accounts available to Americans. For someone who is healthy, has a high income, and can afford to pay medical bills out of pocket while letting their HSA grow, it is an incredible deal.

The Canadian HSA is a simpler, more practical tool for businesses. It does not have the investment bells and whistles, but it does exactly what most small business owners need: it turns healthcare costs into tax-deductible business expenses and gives employees tax-free reimbursements. The lack of hard contribution limits also gives Canadian businesses more flexibility to set benefit levels that actually match their team's needs.

Neither system is objectively "better." They were designed for different healthcare systems with different tax structures. The best one is whichever one you actually have access to and use.

Frequently Asked Questions

Can I use a US HSA in Canada?

If you have an existing US HSA and move to Canada, the account still exists and the money is still yours. However, you generally cannot contribute to it while you are a Canadian tax resident, and the tax treatment becomes complicated. The CRA does not recognize US HSAs as a tax-advantaged account, so any growth or withdrawals may be taxable in Canada. Talk to a cross-border tax advisor if you are in this situation.

Do Canadian HSAs have contribution limits?

There is no fixed dollar limit like the US has. The CRA requires that benefits be "reasonable," which in practice means most businesses set annual limits between $1,500 and $15,000 per employee depending on the employee class and income level. Read more about contribution limits.

Can I cash out my Canadian HSA?

No. Canadian HSAs are reimbursement-only. You cannot withdraw cash, and unused balances cannot be transferred to your personal account. The funds can only be used to reimburse CRA-eligible medical expenses with valid receipts. More details on cashing out.

Who qualifies for an HSA in Canada?

Any incorporated business in Canada can set up an HSA. Sole proprietors and partnerships need at least one arm's-length employee to qualify. The business owner must be drawing T4 salary income (not just dividends) and be actively involved in the business. Employees, their spouses, and dependent children can all be covered under the plan.

The Bottom Line

Canadian HSAs and US HSAs solve the same problem -- making healthcare more affordable through tax savings -- but they do it in completely different ways. The Canadian model is employer-driven and focused on reimbursement. The US model is individual-driven and built for saving and investing.

If you are a Canadian small business owner looking for a straightforward way to cover health expenses with pre-tax dollars, a Health Spending Account is one of the most tax-efficient tools available. Frontier Health makes it easy to set up and manage, with pay-as-you-go pricing and fast reimbursements so you only pay when your team actually uses it.

Simplify Your Business Health Benefits

Get Started