---
title: Pay less tax with Health Spending Accounts?
description: Medical expenses reimbursed through a Health Spending Account are 100% deductible by your corporation and give a 100% tax-free reimbursement to you.
---

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# [Pay less tax with Health Spending Accounts?](https://www.mclenehan.com/articles-and-advice/health-spending-accounts)

 Written by [Mike McLenehan](https://www.mclenehan.com/articles-and-advice/author/mike-mclenehan) | Mar 16, 2022 3:37:31 AM

A Health Spending Account is a cost-effective alternative or supplement to traditional health insurance. A Health Spending Account can turn your after-tax personal medical expenses into pre-tax deductible business expenses.

Health and dental expenses reimbursed through a Health Spending Account are 100% deductible by your corporation and are received 100% tax free by you, the owner, and your family.

## How does A Health Spending Account work?

1. You, the business owner, pay personally for medical expenses required for yourself or members of your family.
2. You submit a claim to your HSA provider. Filing a claim typically includes:  
     
     1. Submitting the receipt/invoice for the health-related expense, and
     2. A payment to your HSA provider equal to the amount you paid personally. These funds will be used to pay you a full reimbursement for the expense.
     3. Your corporation claims the payment as tax-deductible employee benefits expense.
3. Upon approval of the claim, your HSA provider deposits the reimbursement in your personal bank account. You receive this money as a tax-free reimbursement from your HSA provider.

## What types of expenses can be claimed?

An HSA can be used to pay deductibles, coinsurance, or amounts in excess of the maximums allowed for in a traditional benefits plan. HSAs can cover:

- Medications
- Eye glasses and contact lenses
- Professional services (like chiropractic or physiotherapy)
- Dental services that may not be part of an existing dental plan (like caps, crowns, bridges and orthodontics)
- Dental expenses above an existing plan maximums
- Psychological and emotional health services
- Hearing aids and similar equipment or services
- Any healthcare related equipment or devices
- Smoking cessation products (nicotine patches, gum, etc.)

Any expenses which would be eligible for the Medical Expense Tax Credit are eligible for reimbursement through your HSA. [Click here for an extensive list of eligible medical expenses which can be reimbursed.](https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/lines-33099-33199-eligible-medical-expenses-you-claim-on-your-tax-return.html#wb-auto-4)

## Case Study

Mark owns an incorporated small business that pays income tax at Manitoba's small business rate of 9% federally and 0% provincially.

Mark draws a salary from his business each year and has a marginal personal income tax rate of 40% (the percentage of tax that he pays on any additional income he would draw from the corporation).

Mark has $5,000 of medical expenses coming up this year and has two options available to him:

Option A: He can draw $8,333 from his corporation and pay 40% of the amount ($3,333) to the government as personal income taxes. He can then use the remaining $5,000 to pay for his personal medical expenses.

- Or -

Option B: He can use $5,000 of personal funds to pay for the medical expenses. He then submits the invoice for services as well as a payment from his corporation to his HSA provider.

His corporation claims a deduction of $5,000 as a tax-deductible business expense which reduces his corporation's taxes payable by $450.

He receives a tax-free reimbursement from his HSA provider and avoids paying an extra $3,333 in personal income taxes.

Using an HSA (Option B) saves Mark thousands of dollars in combined corporate and personal income taxes.

 

## Is A Health Spending Account Right For you and your business?

Health Spending Accounts provide a great opportunity for small business owners who:

- are self-employed and incorporated
- want to pay for health and dental expenses in a tax advantageous way
- have health and dental expenses that aren't covered by their company's benefits plan
- own a business which is too small to justify the cost of a traditional benefits plan

Reach out to our team today to discuss how a Health Spending Account can benefit your business and your family by providing  health coverage along with exceptional tax savings.

 

[View full post](https://www.mclenehan.com/articles-and-advice/health-spending-accounts)

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