The cost savings of having a health spending account versus paying for your medical expenses personally when you are a single person corporation can be quite substantial. In this post we will show the potential savings and why it is worth getting a health spending account to pay for your healthcare expenses as opposed to not getting an account and paying for your expenses with your personal income. To start, health spending accounts are 100% tax deductible to your business and can be used for all your healthcare expenses and the expenses of your dependents as well.
If you chose to pay for your healthcare expense with your personal income you would of course be paying with your net income after taxes have been deducted. If you opted to get a health spending account then you would be paying for those same expenses with your business income and the amount that you paid is a tax deduction for your business and to you as the individual the amount is tax-free.
Lets provide a few different scenarios to show the cost savings a HSA can provide depending on your income level. For the below example we will assume the business is in Ontario and use Ontario tax rates for the calculations. We will also assume that there is a 10% admin fee charged for the health spending account. Finally for the below example we will assume that your getting a $10,000 health spending account. These figures are based on 2021 tax rates.
| Income | HSA Admin Fee +Taxes | Average Tax Rate | Savings |
| $50,000 | 21.50% | 15.31% | -6.19% |
| $100,000 | 21.50% | 23.45% | 1.95% |
| $150,000 | 21.50% | 30.11% | 8.61% |
If your business is generating little revenue then there is no tax advantage to having a health spending account; that being said once your business is generating more than $86,375 then you should have a health spending account based on the above figures. In other provinces that revenue would be even lower as Ontario has higher taxes on health spending accounts then in other provinces.
Health spending accounts do have taxes added to them and those taxes are based on the amount of the claim, the province you reside in and the admin fee being charged. But as the table above clearly shows if your business is generating revenue in excess of $100K then a health spending account is the right choice.
