What is the Contribution Limit for a Health Spending Account (HSA)?

*The following information pertains to incorporated businesses only, for more information on sole-proprietorships and their eligibility, please see Blog.

Health Spending Account (HSA) Limits

Whether you are working out of your garage or run a multidivisional corporation, when you establish a plan with Frontier HSA, you will need to set an account limit for each class of employee. This is the amount of eligible medical expenses an employee can claim in any given year.

Why Are their Limits on My HSA Account?

An HSA requires an account limit to ensure it meets the definition of a Private Health Services Plan under section 248(1) of the Income Tax Act. These limits ensures that an HSA qualifies as an insurance plan and that the HSA is not used exclusively as a tax-free benefit for a corporation’s shareholders. While the Canada Revenue Agency (CRA) doesn’t establish specific limits for HSAs, it does require that account limits be deemed “reasonable.”

What Is a Reasonable Limit for an HSA Account?

This “reasonable limit” is based on industry-standard norms within the insurance sector and the estimated income of the employees in a given class. For example, the following two guidelines are generally used to determine these limits:

1. the account limit should not be more than 15% of the employees estimated annual income; and
2. the highest account limit within the organization should not exceed the lowest account limit within the organization by a factor of more than 10X.

For example, if a plan owner decided to establish two classes for their corporation, an “Executive Class” and an “Employee Class,” if the Executive Class had an established limit of $15,000, the Employee Class must be given a limit of at least $1,500.

What is the Limit for Frontier HSA?

Based on industry-best practices and CRA criteria, Frontier HSA has established a maximum benefit limit of $15,000 for all employee classes. No matter what benefit class you belong to, you cannot exceed this $15,000 limit per year.  In addition to this ceiling, When establishing benefit classes for different classes of employees, the plan owner needs to ensure the highest account limit does not exceed the lowest class limit by a factor of more than 10X.