You Just Opened Your Practice. Here's How Health Spending Accounts Actually Works Now.

Congratulations — the licence is on the wall. Somewhere in the pile of decisions you've been making, there's one nobody put on your checklist: you're now paying for your family's health expenses with the most expensive dollars you own.

I spent years on the underwriting side of this industry before becoming an advisor. I've seen both sides of the table: how these plans are priced, and how they're sold. This is the plain-language guide to health spending for a new practice owner in Alberta or BC.

The problem: after-tax dollars doing a before-tax job

As an employee, you probably had an employer plan quietly covering dental cleanings, glasses, physio, prescriptions. Now those costs land on you personally — paid from money that's already been taxed on its way out of your practice.

For an incorporated owner, there's a structure designed for exactly this. It's not exotic, and it isn't new. But the way it gets set up — and sometimes oversold — is worth understanding before you sign anything.

What a Health Spending Account actually is

A Health Spending Account (HSA) lets your corporation pay eligible medical and dental expenses for you and your family. (You'll also hear it called a Private Health Services Plan, or PHSP.) Set up correctly, the cost is generally deductible to your corporation — and not taxable to you.

If you've never seen one in action, here's the entire mechanism:

1. You pay for the expense personally, exactly as you do today — the dentist, the physio, the prescription.

2. You submit the receipt to your HSA plan administrator.

3. Your corporation funds the claim plus a small administration fee.

4. You're reimbursed personally — not taxable to you — and the corporation deducts the cost as a business expense.

That's it. No insurance underwriting, no monthly premium for coverage you may not use — the corporation simply pays real health expenses with corporate dollars instead of you paying them with personal after-tax dollars.

Note the phrase set up correctly. This works when the plan meets CRA's requirements, and that's where shortcuts get expensive:

• You need to be incorporated. This one is black and white. CRA says a sole proprietorship with no arm's-length employees cannot have an HSA (CRA's own warning on this). The plan doesn't qualify, and the amounts paid in aren't deductible. If a provider tells you otherwise, walk away. Not incorporated yet? The order of operations matters — get your accountant in the conversation first.

• Limits have to be reasonable. CRA expects your annual HSA allotment to be reasonable relative to your income. An account set at several times what someone in your role would earn in benefits is the kind of thing that gets unwound at exactly the wrong time.

• Eligible expenses follow CRA's medical expense rules. The benchmark is CRA's eligible medical expenses list — the same list used for the Medical Expense Tax Credit. CRA requires that at least 90% of what the plan pays come from that list (CRA's guidance for employers). The list is broader than most people expect — and narrower in a few places people assume. Check it before you count on a specific expense.

• If you have staff, an owners-only HSA is a problem. The tax treatment works because the benefit reaches you in your capacity as an employee of your corporation — not as a shareholder. If your practice has employees and the plan covers only the shareholders, CRA can deem it a taxable shareholder benefit, and the favourable treatment collapses at exactly the wrong moment. Benefit classes have to be designed fairly across the people who work in the practice — this is the single most common way clinic HSAs go offside.

The alternative almost nobody mentions: cost-plus

Here's the honest part that doesn't always make it into the sales pitch: a standing HSA isn't always the right tool.

If your family's health spending is steady and predictable, an HSA structure earns its keep. But maybe your expenses are occasional and large — say, a planned procedure. Then a cost-plus claim may fit better. It's an as-needed arrangement, typically priced as a small percentage of the claim, with no standing account to maintain.

Which one is cheaper depends entirely on your spending pattern. Any advisor proposing an HSA should be able to show you both numbers. If they can't — or won't — that tells you something.

Before any of this: protect the income itself

A candid observation from someone who's reviewed a lot of new-practice files. Owners think about health spending first, because it's familiar. They think about disability coverage last, because it's uncomfortable. That's backwards.

Your practice's most valuable asset is your ability to show up and practise. Disability insurance — real income replacement, with a definition of disability that fits how you actually work — is usually the first policy that matters for a new owner. Your professional association plan may provide a base; it's worth knowing exactly what it pays, for how long, and when, before assuming it's enough.

When does a group plan enter the picture?

Usually not on day one. But sooner than most owners expect — often around three to five staff, when you start competing for hires against clinics with full packages. At that point plan design matters more than the carrier's logo, and eligibility rules (associates, contractors, part-timers) are where clinic plans most often go wrong.

When that day comes, here's the recommendation I give every new employer: start with a light plan, and add benefits in subsequent years as your real costs become known. Build a sustainable core in year one. Add prescription coverage, long-term disability, or richer dental in later years — once your claims data shows what your team actually uses and what your budget carries. The reason is human, not actuarial: adding a benefit is always good news. Taking one away is remembered forever.

FAQ

I'm a sole proprietor. Can I have an HSA?

No. CRA does not consider an HSA for a sole proprietorship with no arm's-length employees to be a valid private health services plan — despite how some providers market them. What the Income Tax Act does allow a sole proprietor (s. 20.01) is deducting premiums for health coverage obtained through a third party such as a licensed insurer, capped at $1,500 per adult and $750 per child annually, with conditions. That's a premium deduction, not an HSA — and it's often a reason the incorporation conversation happens sooner than planned.

Are HSA claims really tax-free?

When the plan meets CRA's requirements: generally deductible to the corporation, non-taxable to you. The qualifier does real work — structure and reasonable limits are what make the treatment hold.

Can my staff be on my HSA?

If you have staff, the sharper question is whether they can be left off it — and the answer is usually no. Covering shareholders while excluding employees is what triggers the deemed-shareholder-benefit problem above. Classes can differ reasonably (by role, tenure, hours), but the plan has to hold together as an employee benefit. In practice, this is the bridge point where an HSA conversation becomes a group benefits conversation.

What does setting this up cost?

It varies by provider. Administration is typically a percentage of claims — around 10% is common. The fees are part of the plan's cost to your corporation, and generally deductible alongside the claims. Taxes on these plans vary by province; Alberta and BC keep it simpler than Ontario or Quebec. Your provider will confirm the details. This is exactly the "show me both numbers" question to ask.

The checklist

I've put the whole year-one sequence into a one-page checklist: structure, income protection, HSA vs. cost-plus, and the six questions to ask any advisor — including me. Download the New Practice Owner's Benefits & HSA Checklist.

Rather talk it through? Book a no-obligation conversation. I'm independent, licensed in Alberta and BC. The first meeting is about understanding your situation — not selling you a product.

This article is general education, not tax, legal, or personalized insurance advice. HSA treatment depends on your structure and CRA's requirements — coordinate with your accountant before setting one up.