Still reimbursing health expenses through after-tax salary or bonuses?
You might be overpaying $3,000–$7,000 a year—per employee.
Many small business owners in Canada stick with outdated benefit practices simply because they’ve heard HSAs are “only for big companies” or “too complicated.” These myths are not only costing you money, they’re limiting what you can offer your team.
The truth? Health Spending Accounts (HSAs) are one of the most tax-efficient and flexible ways for incorporated small businesses to offer health benefits in Canada—without insurance.
But most owners never explore this tool because of lingering misconceptions.
Let’s break the cycle.
In this post, we’ll bust 5 common myths about HSAs—and show how the right approach can turn your employee health benefits into a powerful cost-saving advantage in 2025.
Read on to protect your bottom line and give your team what they actually value.
Quick Snapshot Table: HSA vs Traditional Bonus Approach
Before we bust the myths, here’s a fast breakdown of why HSAs often win by default when compared to salary top-ups or bonuses used to cover health expenses:
| Feature | Traditional Bonus Approach | HSA (Health Spending Account) |
| Tax-deductible for employer | ❌ No – taxed as payroll expense | ✅ Yes – 100% deductible as a business expense |
| Tax-free for employee | ❌ No – employee pays income tax | ✅ Yes – reimbursement is non-taxable |
| Customizable benefit levels | ❌ Limited – flat compensation | ✅ Flexible – set per employee or class |
| Requires insurance provider | ✅ Yes – often bundled plans | ❌ No – self-managed via HSA provider |
| CRA-compliant | ⚠️ Often unclear or risky | ✅ Fully compliant under Income Tax Act |
| Transparency in costs | ❌ Hidden fees in bonus structures | ✅ Clear tracking of reimbursements |
| Unused budget carried forward? | ❌ No – bonuses spent or taxed | ✅ Yes – many HSA plans allow rollovers |
| Applies to family benefits? | ❌ Rarely – personal use only | ✅ Yes – family medical expenses eligible |
Why This Table Matters
Most incorporated professionals assume salary increases or one-off bonuses are “just simpler” than setting up a health benefit. But this table shows how those shortcuts come with real financial penalties—for both you and your employees.
In many cases, the difference between a taxable bonus and a non-taxable HSA reimbursement can be thousands of dollars annually, even with small teams.
Myth #1: “HSAs Are Only for Big Corporations”
Truth: Even a one-person incorporated business is eligible to set up an HSA in Canada.
Case Example:
Sarah, a self-employed graphic designer earning $100,000/year, spends ~$3,500/year on dental, vision, and massage therapy.
Without an HSA:
→ She pays using after-tax income, losing 30–40% to taxes.
With an HSA:
→ She claims those expenses through her corporation and saves over $1,400/year in taxes.
Key Takeaway: HSAs scale down just as well as they scale up — perfect for incorporated consultants, contractors, and solo practitioners.
Myth #2: “HSAs Are Too Complicated to Manage”
Truth: Most modern HSA platforms do the heavy lifting — no spreadsheets, no manual calculations.
How It Works with Wellbytes:
- You upload a receipt.
- The platform auto-checks eligibility.
- Your company reimburses you, tax-free.
- A year-end report is generated for your accountant.
Setup Time: Less than 15 minutes for most businesses.
Did You Know?: Over 80% of Wellbytes users are first-time HSA holders — and 90% say setup was “easier than expected.”
Myth #3: “Insurance Is Better Than an HSA”
Truth: HSAs aren’t meant to replace insurance — they’re designed to fill the gaps where traditional insurance doesn’t reach.
Best Practice:
Pair a low-cost catastrophic insurance plan with an HSA. You’ll cover major emergencies and get tax-free reimbursement for day-to-day expenses like dental, vision, and prescriptions.
Result: Lower monthly premiums and more flexibility in how you spend on health.
Remember: HSAs = control and tax savings, insurance = risk protection. Together, they’re powerful.
Myth #4: “Employees Won’t Value an HSA”
Truth: Employees actually prefer flexibility and tax-free dollars.
Stat to Know: 78% of Canadians say they’d rather receive customizable health benefits (like HSA/WSA) than rigid group plans.
Perceived Value Boost:
Allowing employees to choose between mental health support, physiotherapy, dental, or wellness services creates higher satisfaction and retention.
Tip: Include an HSA explainer during onboarding — it makes a huge difference in adoption and appreciation.
Myth #5: “It’s Not Worth the Trouble for a Small Team”
Truth: Whether you’re a solo founder or a two-person company, the tax savings add up fast.
Real Case:
A Toronto-based startup with 2 employees used Wellbytes to set up an HSA. Their combined medical expenses were ~$6,000/year.
→ They saved over $4,800 in corporate and personal taxes — and got peace of mind.
Minimal Admin: Wellbytes handles claims, CRA compliance, and year-end summaries.
Bottom Line: If you’re incorporated in Canada — even with a small team — an HSA pays for itself.
What You Gain When You Let Go of the Myths
Let’s recap.
By setting aside the common misconceptions, here’s what you truly unlock with a Health Spending Account:
- ✔️ 100% tax-free reimbursements for eligible health expenses
- ✔️ Happier, more empowered employees with flexible benefits
- ✔️ No payroll taxes, no taxable benefits, and full CRA compliance
- ✔️ Scalable plans that grow with your business — even if you’re just starting out
Imagine running your business with peace of mind, knowing your health benefits are working just as hard as you are.
Ready to Take the Smarter Route?
Set up your HSA with Wellbytes in minutes — zero red tape, 100% compliant, and tailor-made for small Canadian businesses.
