For a Canadian law firm HSA, check Private Health Services Plan (PHSP) qualification, employee rather than shareholder capacity, eligible expenses, reasonable allowances and adequate records. Apply actual dental-access reporting instructions; a CRA page date alone does not establish a new HSA rule.
Start with the current PHSP requirements
The HSA must meet the requirements of a Private Health Services Plan (PHSP) for the federal employee tax treatment described here. The plan must be in the nature of insurance and meet the applicable expense and participant conditions. For a self-insured plan, CRA’s all-or-substantially-all test generally examines benefits actually paid during the calendar year; an insured plan uses the relevant premiums. Allocating an allowance is not the same as paying an eligible medical benefit.
CRA’s current medical-expense and PHSP guidance says its editorial update did not change the administrative policy. Do not infer new registration, real-time audit or contribution requirements from a page date or an administrator’s marketing.
Sources: CRA: Medical expenses and PHSP requirements; Income Tax Act subsection 248(1), PHSP definition.
Review owner-employees and family coverage
Where a lawyer is both an employee and a shareholder, assess the capacity in which the benefit is received. Confirm the plan’s covered people and family relationships. A general claim that family eligibility has expanded is not enough to approve a particular expense.
Check the actual plan and CRA’s participant conditions before reimbursing a family claim. The PHSP guidance describes coverage for the employee, a spouse or common-law partner, and qualifying household members connected by the specified family relationships. Keep the information needed to substantiate coverage and the expense. Do not describe this as a new expansion or restriction without the specific amending authority and effective date.
Sources: CRA: Medical expenses and PHSP requirements; Income Tax Act subsection 15(1).
Keep the medical and wellness benefits distinct
Services provided purely for cosmetic purposes, and related expenses, are excluded unless necessary for medical or reconstructive purposes. An elective procedure is not excluded merely because it is elective. Vitamins and supplements are not eligible medical expenses, even with a doctor’s note or prescription. The exception is vitamin B12 therapy prescribed by a medical practitioner for pernicious anaemia. Gym membership fees are not eligible medical expenses, even when recommended or prescribed by a doctor.
A separate Wellness Spending Account (WSA) may reimburse employer-approved lifestyle expenses, such as gym fees or sporting goods. Personal reimbursements are generally taxable employee benefits. Medical-expense eligibility and any specific employment-benefit tax exception must be assessed separately.
Sources: CRA details of medical expenses; CRA: Medical expenses and PHSP requirements; CRA recreational facilities and club dues.
Set and document the allowance
Set the HSA allowance under the actual plan and the employer’s documented circumstances. Section 67 limits deductions to expenses that are reasonable in the circumstances; it does not provide a 20–25%-of-salary formula. Do not present a salary percentage or a $10,000–$15,000 range as a CRA-approved allowance or safe harbour.
High income alone does not establish an automatic audit trigger or a different published salary-percentage cap. Review the employer’s actual costs, plan and participant circumstances, and determine the deduction and timing separately from an allowance election.
Sources: Income Tax Act section 67; CRA: Flexible Employee Benefit Programs, archived IT-529; CRA: What you should know about audits RC4188.
Retain adequate claim and accounting records
Keep adequate, legible supporting records that allow CRA to determine tax obligations and entitlements. CRA’s guidance recognizes traditional paper records as well as computerized records. Records created electronically must remain electronically readable for the applicable retention period. The general rule is six years from the end of the last tax year the records relate to, with exceptions that can require longer retention. A late-filed return, an objection or appeal, or a CRA retention demand can change the required period. Using an administrator does not transfer the taxpayer’s recordkeeping responsibility.
A digital claims platform may be useful for administration, but its submission method is not proof of a universal CRA requirement for electronic-only receipts.
CRA selects audit files using a risk assessment. Its published process describes an auditor contacting the taxpayer and examining relevant records. An administrator’s review of a claim is a separate process. A digital workflow or a review percentage does not establish CRA approval or audit protection.
Sources: CRA: Keeping Records RC188; Income Tax Act section 230; CRA: What you should know about audits RC4188; Wellbytes public Administrative Services Agreement.
Check the actual dental-reporting obligation
A specific reporting change does apply to dental coverage: CRA says the limited code-1 relief for T4 box 45 and T4A box 015 applied only to 2023 and 2024 and no longer applies for 2025 onward. The employer instructions include HSAs and allowances that provide access to dental services. Check the actual access to coverage and the relevant filing instructions. Dental-coverage reporting does not establish a new HSA salary cap, digital-only record rule or family-expense entitlement.
Sources: CRA: Dental Care Measures Act T4/T4A updates; CRA: T4 employer instructions, dental benefits.
Questions to ask before selecting an administrator
- What services and documentation requirements are in the accepted agreement?
- Which charges, funding steps and claim deadlines apply?
- How can the employer retrieve the records it needs?
- How are medical claims kept distinct from personal wellness benefits?
Review the actual terms and obligations. Neither automation nor a standalone product guarantees compliance, audit protection or tax savings.
Sources: Wellbytes public Administrative Services Agreement; CRA: Medical expenses and PHSP requirements; CRA: What you should know about audits RC4188.
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