HSA for Your Corporation: A Tax Guide for Canadian Business Owners

By Frontier Team•February 10, 2026•4 min read

If you own a Canadian corporation, a Health Spending Account is one of the simplest ways to reduce your corporate tax bill while covering real health expenses. Your corporation pays for dental, vision, prescriptions, and other eligible medical expenses as a fully deductible business expense. You receive the reimbursement tax-free. No premiums, no middleman.

Here is how it works inside your corporation and what you need to stay onside with the CRA.

How the Tax Deduction Works

When your corporation reimburses a health expense through an HSA, it is treated the same as any other business expense — rent, salaries, office supplies. The full amount is deductible on your T2 corporate tax return, reducing your taxable income dollar-for-dollar.

On the employee side (that includes you, the owner), the reimbursement is 100% tax-free. It does not appear on your T4. You pay no income tax, no CPP, and no EI on it.

Compare that to paying for health costs personally. To cover a $1,000 dental bill out of pocket, you first need to pull $1,500 to $1,800 out of your corporation as salary or dividends (after tax). Through the HSA, your corp pays $1,000 plus a small admin fee, and the whole thing is deductible.

The Shareholder-Employee Requirement

To use an HSA through your corporation, you must be an employee of that corporation. This means paying yourself a T4 salary — not just dividends. The CRA requires that an HSA function as a legitimate employee benefit, so the person receiving reimbursements needs to be on payroll.

You do not need a large salary. Even a modest T4 income establishes the employment relationship that makes the HSA valid.

If you currently pay yourself exclusively through dividends, talk to your accountant about adding a small salary component. For a deeper look at the compliance rules, see our Accountant's Guide to Private Health Services Plans, which covers the legal foundation under ITA s.248(1) and the cost-plus plan structure.

What Your Corporation Can Reimburse

Your HSA covers anything on the CRA's eligible medical expenses list. The most common claims for incorporated professionals are:

  • Dental work (cleanings, fillings, crowns, braces)
  • Prescription drugs and medications
  • Vision care (glasses, contact lenses, eye exams)
  • Paramedical services (physiotherapy, massage therapy, chiropractic)
  • Mental health services (psychologist, therapist)
  • Fertility treatments and related procedures
  • Medical devices and equipment

Your dependents — spouse and children — are covered too, at no extra cost.

Documentation the CRA Expects

Proper documentation protects your deduction during an audit. Keep these on file:

  • Receipts for every expense claimed, showing the provider, date, amount, and service
  • Corporate minutes or a board resolution establishing the HSA as an employee benefit
  • A written plan document outlining coverage limits, eligible participants, and the benefit year
  • Third-party administration records — using a provider like Frontier Health means your plan is already structured for CRA compliance, with audit-ready documentation included

For a full breakdown of recordkeeping requirements, see the Recordkeeping & Audit Support section of our accountant's guide.

Setting the Right Annual Limit

Your corporation chooses how much to allocate per employee per year. There is no CRA-mandated maximum for incorporated businesses, but the amount should be reasonable relative to the business income. Most solo incorporated professionals set limits between $1,500 and $5,000 per year.

The key rule: all employees in the same class must receive the same benefit. If you have arm's-length employees, you can create different employee classes (for example, management vs. staff) with different limits, but everyone within a class gets the same amount.

Getting Started

Setting up an HSA for your corporation takes about 10 minutes with Frontier Health. Solo incorporated professionals pay $120/year plus 8% per claim. Businesses with staff pay $450/year plus 5% per claim. Claims are processed within 24 hours, and every plan is fully CRA-compliant from day one.

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