Here’s the pitch, and it’s a good one.
You pay for dental work, prescriptions, glasses, physio and orthodontics out of your own pocket, with money you already paid tax on. At BC’s top rate you had to earn roughly two dollars to spend one.
A health spending account flips that. Your corporation reimburses the expense, deducts it in full, and you receive it tax-free. Same dentist, same bill, and roughly half the earnings required to pay it.
That is genuinely how it works when it works. The part that gets skipped is the sentence before it.
What the medical expense credit actually gives you
Most people assume the personal route isn’t that bad, because there’s a medical expense tax credit on the return.
Look at what it is. A non-refundable credit, calculated at the lowest federal rate, on the amount of eligible expenses above a threshold — a percentage of your net income or a fixed dollar figure, whichever is lower. On a professional income, that threshold is doing a lot of quiet work, and what’s left gets relieved at the lowest bracket, not yours.
A corporate deduction is a deduction against income taxed at 11% or 27%. A personal credit is relief at roughly 15% on whatever survives the threshold. Those aren’t the same instrument and they aren’t close.
That gap is the whole argument for an HSA, and it’s a real gap.
The question worth asking first
A health spending account only works because the Income Tax Act treats it as a private health services plan. That’s what makes the corporation’s payment deductible and your reimbursement non-taxable.
For it to be a private health services plan, the arrangement has to be a plan of insurance. There has to be some element of risk shifted from the individual to somebody else.
In 2022 the CRA was asked directly whether a health spending account set up for a sole shareholder-employee meets that test. Their answer was that it likely does not. The reasoning is uncomfortable and hard to argue with: where one person owns the company and is the only person covered, nobody is insuring anybody. The owner is reimbursing themselves through their own corporation, and no risk has moved anywhere.
If the arrangement isn’t a private health services plan, the tax treatment goes the other way. The reimbursement becomes a taxable benefit in your hands, and you’ve taken on administration fees and paperwork to arrive somewhere worse than where you started.
Why you may not have heard this
Because it isn’t anybody’s job to raise it.
The benefits provider sells the plan. Their job is the plan working administratively, and it does. Your accountant sees the deduction on the return and it looks ordinary, because it looks exactly like every other employee benefit deduction. Nobody’s job is the question of whether the structure supports the treatment, and that question only gets asked properly on audit.
This isn’t a reason to avoid HSAs. Plenty of professional corporations have real employees and clear the test comfortably. It’s a reason to know which one you are before you sign, because the answer is knowable in advance.
When it works well
A corporation with arm’s-length employees who are also covered by the plan is a very different animal from a one-person corporation. There are other people, there’s a genuine plan, and risk is genuinely being pooled.
Where the structure supports it, the case is strong:
The coverage is broader than most group plans, because eligible expenses follow the CRA’s own list rather than an insurer’s. Orthodontics, laser eye surgery, some paramedical and alternative practitioners, things a group plan caps at a few hundred dollars.
The cost is a percentage of what you actually claim, plus tax, rather than a premium set by last year’s claims experience and the insurer’s margin.
And your spouse and dependants are covered under the same arrangement.
A dental practice with six staff, a clinic with a receptionist and two hygienists, a business with a real payroll — these are the files where an HSA is straightforwardly a good idea and usually underused.
What to actually do
Three things, and none of them cost anything.
Count the people. Are there employees other than you and your family, at arm’s length, who’d be covered by the plan? That single fact drives most of the answer.
If you already have an HSA and you’re a one-person corporation, ask your accountant to look at it. Not to panic, and not to unwind anything today. Just to have an opinion on the file before somebody else forms one.
And if the answer is that an HSA isn’t clean for your structure, ask what else does the same job. There usually is something. A properly structured group plan, coverage through a spouse’s employer, or simply accepting the personal route and planning the timing of large expenses so they land in one tax year rather than two. None of those are exciting. All of them beat a deduction that doesn’t hold.
We look at this the way we look at everything else on a corporate file. The product isn’t the question. The structure is the question, and the product is whatever fits it afterwards.
When did anybody last look at yours?