Is Self-Administering an HSA Legal in Canada?

By Frontier Team•January 30, 2025•3 min read

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No, self-administering an HSA is not recommended if you want to stay CRA-compliant. The CRA requires Health Spending Accounts to function as a Private Health Services Plan (PHSP), which means there must be a third-party administrator handling claims -- not the business owner themselves. Here's why, and what can happen if you try to do it yourself.

The CRA does not explicitly prohibit self-administered HSAs, but it requires that all PHSPs, including HSAs, function in the nature of insurance. This means that:

  • There must be a separation of control between the employer funding the plan and the claims process.
  • The plan must be structured to ensure risk-sharing and adherence to PHSP principles.
  • The plan administrator must ensure that only eligible expenses are reimbursed to maintain tax-deductibility.

A self-administered HSA does not meet these requirements, making it highly vulnerable to actions by the CRA, including audits and potential loss of tax-deductibility.

Risks of Self-Administering an HSA

If a business chooses to self-administer its HSA, it faces several risks:

  1. Fines or penalties from the CRA for an arrangement that doesn’t qualify as a PHSP
  2. Loss of tax exemption on claims
  3. Increased scrutiny on your business by the CRA in proving you can meet the requirements.
  4. Incorrect claims processing and incorrect data collection and reporting, poor record keeping.
  5. Conflicts of interest, since employers would process their own claims, the CRA may question impartiality, and reimbursements you pay yourself would likely be treated as taxable personal income or shareholder benefits.

The Frontier HSA Solution: 100% CRA Compliance & Tax-Deductibility

Partnering with a qualified and independent HSA provider like Frontier HSA ensures full compliance with CRA regulations, eliminating the risks associated with self-administration. Here’s why businesses choose Frontier HSA:

  1. Employer–Administrator Contract: Your corporation signs an agreement (often called a “cost plus agreement”) with a Frontier HSA.
  2. Employee Coverage: The employer’s plan states that employees (and their dependents) have the right to be reimbursed for eligible medical expenses, up to specified limits.
  3. Administrator Pays Claims: When employees incur eligible expenses, they submit them to the administrator, which is legally obligated to pay those claims (i.e. “to indemnify”).
  4. Employer Reimburses Administrator: The administrator then sends a “cost plus” invoice back to the employer for the actual claim costs plus an administration fee.

This arrangement follows the accepted industry standard so that your corporations HSA funds can be effectively being indemnified by a separate entity—thus meeting the requirement that the plan be “in the nature of insurance”

At the end of the day, you don’t want your business to struggle with added stress of CRA non-compliance, and since all the fees and tax associated with Frontier HSA are 100% tax deductible, it’s built in!

Ready to set up a fully compliant HSA? Learn how to get setup at frontierhsa.ca

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