HSA’s & METCs
A Health Savings Account (HSA) is a tax-efficient way to provide medical, dental, and vision benefits approved by the Canada Revenue Agency. By utilizing an HSA, a corporation can write off 100% of the costs related to the plan, making it an excellent option for both employers and employees. Additionally, any expenses reimbursed through the HSA are tax-free for the employees, providing additional savings.
Medical Expense Tax Credits (METCs) and Health Savings Accounts (HSAs) are two methods that can help individuals save money on medical expenses, but they operate differently. METC offer a tax credit for eligible medical expenses that can be claimed on your tax return, reducing the amount of tax owed.
We can help you understand the differences between these two options and determine which one best fits your specific needs and financial goals.
HSA & METC Facts – True or False?
The shareholder MUST be earning a T4 income to set up a health spending account.
False: While not imperative, earning a T4 income is a good idea as it helps establish an employer-employee relationship, which can be advantageous if the CRA scrutinizes the arrangement. However, it is not mandatory.
Only items mentioned in the METC list can be covered by an HSA.
True: While 90% or more of the expenses claimed through the HSA must appear on the METC list, there’s a 10% flexibility for necessary expenses not listed. This buffer is to cover necessary expenses that might not be listed due to an outdated METC list.
Companies with only one shareholder-employee cannot have a health spending account.
False: When set up correctly, a sole business owner as the sole employee can indeed have a health spending account (HSA). Key factors include establishing a fair limit compared to industry peers and ensuring an ‘element of risk.’
Corporations with as few as one employee can be eligible for an HSA.
True: Incorporated businesses, including shareholder employees and all other corporate employees, are eligible to participate in an HSA. Corporations with as few as one employee can be eligible as well.
Unused HSA credits can be rolled into an employee’s RRSP.
False: Unused HSA credits cannot be rolled into an RRSP at the end of the year. HSA dollars can only be used for qualified medical expenses. Redirecting the funds outside of a PHSP would render the plan non-compliant.
For the purposes of the new Canada Dental Benefit, a health spending account counts as Dental Coverage and must be reported on employees' T4s.
True: The CRA considers a Health Spending Account as Private Dental Insurance. When completing T4s, the plan sponsor must indicate that employees had dental coverage, regardless of usage or HSA plan amount.