CRA Requirements for Health Spending Accounts

Health Spending Accounts (HSAs) offer Canadian businesses a tax-efficient way to reimburse healthcare expenses. However, compliance with Canada Revenue Agency (CRA) guidelines is essential to maintain tax-exempt status and avoid costly penalties.

CRA Requirements by Business Type

Incorporated Businesses with Arm’s-Length Employees

• Consistent Eligibility: All employees within the same defined class must receive equivalent benefits.
• Defined Annual Limits: Set clear and reasonable annual maximums.
• Employer-Funded: Costs must be borne entirely by the employer without employee top-ups.

Solo Incorporated Businesses (No Arm’s-Length Employees)

• Reasonable Limits: Annual benefit amounts must reflect reasonable employee compensation, avoiding excessively high limits.
• Legitimate Employee Benefit: Clearly document that the HSA is provided as an employee benefit rather than a shareholder perk.
• Formal Documentation: Maintain a formal, written plan that clearly outlines terms, limits, and eligibility.

Critical Compliance Practices for All HSAs

Proper Documentation

Keep detailed, organized records of eligible expenses, reimbursements, and claims to satisfy CRA scrutiny.

Transparent Reimbursement Protocols

Ensure reimbursement procedures are consistent, clearly communicated, and transparent.

Independent Administration

Use an impartial third-party administrator to manage your HSA, eliminating potential conflicts of interest.

Best Practices for Maintaining Compliance

• Perform regular internal audits of claims and reimbursements.
• Clearly communicate to employees regarding eligible expenses and reimbursement processes.
• Conduct thorough record-keeping of all transactions.
• Annually review third-party provider performance to ensure compliance and effectiveness.

Stay proactive—regularly review and update your HSA practices to maintain CRA compliance.