Health spending account

February 28,2018

Health Spending Account



How can a corporation utilize a health spending account to write off personal medical expenses?


Let’s take a typical example. You have a corporation and you are paying yourself a salary as an employee of your corporation. As an employee, you submit a $1000 medical expense to a third-party health spending account (HSA) agency. The HSA agency is going to take this receipt and do all of the back-end accounting and remitting, adding on a typical 10% fee on top of the original amount.


Now, your $1,000 medical expense just turned into $1,100 and your corporation is going to get an invoice for $1,100 that you can write off against your income for the year. In Alberta in 2018, the current low business tax rate is 12.5%. Essentially, you’re saving at least 12.5% off that $1,100 because it’s written off against your business income. At that point, you get to pay out the $1,000 back to yourself, the employee, tax-free!


To recap: You have a receipt that you submit to a third-party health spending account agency. They are going to tack on a percentage. It’s going to be invoiced to your corporation, and you’re going to save taxes because it’s an invoice that you get to write off against your personal income. And then from there, your money is going to flow back to the employee, which could be yourself, tax-free.


From a tax point of view, you are saving between 12.5% and the general tax rate of 27% in Alberta, while also receiving the full expense amount tax-free. Essentially you are saving the marginal tax rate that you would have if you were to take out that $1,000.


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