Health Spending Account

What Is a Health Spending Account (HSA) in Alberta — And Should You Have One?

A Health Spending Account (HSA) — officially called a Private Health Services Plan (PHSP) by the CRA — is a tax structure that allows incorporated business owners and some sole proprietors to pay for personal medical expenses through their business, pre-tax. It is not insurance. There are no monthly premiums to an insurer and no coverage limits. You pay for eligible medical expenses, submit them through an administrator, and the corporation reimburses you — deducting the amount as a business expense.

For incorporated professionals in Alberta, an HSA is one of the most immediate and low-cost tax advantages available. The setup is free (through Frank Cover). The tax saving starts with the first receipt you submit.

How It Works — Step by Step

• Set up the plan — A third-party administrator (TPA) formalizes the PHSP structure for your corporation. Frank Cover facilitates this.
• Incur eligible expenses — You or your family member has a dental cleaning, prescription filled, eye exam, or physiotherapy session.
• Submit the receipt — You submit the receipt through the TPA's portal or app.
• Get reimbursed — The TPA processes the claim and the corporation reimburses you the full amount.
• Deduct as a business expense — The corporation deducts the reimbursement amount (plus a small admin fee) as a legitimate business expense under CRA rules.

The net effect: medical expenses you were paying personally with after-tax dollars are now paid with corporate pre-tax dollars. The tax saving depends on your corporate tax rate, but for most Alberta incorporated professionals it represents a meaningful annual benefit.

Who Qualifies?

A PHSP is most straightforward for:

• Incorporated professionals (any occupation) who are employees of their own corporation
• Sole proprietors with at least one unrelated arm's length employee (CRA has specific rules here)
• Small business owners with employees — can extend benefits to all employees

For sole proprietors without employees, the rules are more restrictive. Frank Cover will tell you upfront whether a PHSP is appropriate for your structure.

What's Covered

The eligible expense list is defined by CRA under Section 118.2 of the Income Tax Act. Major categories include:

• Dental — cleanings, x-rays, fillings, crowns, orthodontics, implants
• Vision — glasses, contacts, eye exams, laser eye surgery
• Prescriptions — all drugs dispensed by a licensed pharmacist
• Paramedical — physiotherapy, massage (if prescribed), chiropractic, naturopathic, acupuncture
• Mental health — psychologist, social worker, psychotherapist services
• Medical devices — CPAP, hearing aids, wheelchairs
• Reproductive health — IVF, birth control prescriptions

See the full list: What Medical Expenses Are Eligible for an HSA in Canada?

What's NOT Covered

• Gym memberships and fitness equipment (covered by a PSA — Personal Spending Account — as a taxable benefit)
• Cosmetic procedures for purely aesthetic purposes
• Vitamins and supplements (unless prescribed for a specific condition)
• Group insurance premiums

PHSP vs Group Benefits — The Core Decision

For incorporated professionals who need dental, vision, prescriptions, and paramedical but not group disability or life (which they buy individually), a PHSP is almost always the better choice. See: PHSP vs Group Benefits for Alberta Small Business Owners.

Frequently Asked Questions