Health spending account (HSA)
A health spending account is an employer-funded arrangement that reimburses employees’ medical costs. CRA guidance calls such accounts health care spending accounts (HCSAs) and addresses self-insured plans that consist of them. The CRA says reimbursed medical expenses are generally taxable, but not when paid under a plan that meets its private health services plan conditions.
A buyer meets a health spending account in the seller’s benefits file. The CRA says that if an employer pays or reimburses an employee’s medical expenses, the payment is generally a taxable benefit, but expenses paid under a private health services plan (PHSP) are not taxable. The CRA considers a plan a PHSP when all of its listed conditions are met. See what happens to the pension or benefits plan on a sale.
The CRA’s conditions and what to ask
- Every covered expense is a medical expense or a connected expense, and the plan is in the nature of insurance.
- Coverage is limited to the employee, the employee’s spouse or common-law partner, or household members connected by blood, marriage or adoption.
- Ask how the seller tested the “all or substantially all” requirement. The CRA describes a separate method for self-insured plans, including those made of HCSAs.
- Ask whether the seller has one group plan or several. The CRA says that is a question of fact and law.
Related terms are group benefits plan and taxable benefits.
Sources
This definition is checked against primary sources. Links were last confirmed on the dates shown.
- 01Canada Revenue AgencyGovernmentMedical expenses, including payments from a private health services plan (PHSP)
- 02Canada Revenue AgencyGovernmentEmployers’ Guide – Taxable Benefits and Allowances (T4130)
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