If you're planning to get a Health Spending Account (HSA) in Canada or already have one, it's crucial to be aware of these often-overlooked insights to maximize your benefits and avoid costly mistakes.
1. Limited Eligible Expenses
Many Canadians assume that HSAs cover all health-related expenses. However, the reality is more restrictive, as the CRA provides a specific list of qualified expenses. Using HSA funds for non-eligible medical expenses can result in unexpected taxes and a 20% penalty. Always check the eligibility of your expenses to stay compliant.
2. Account Costs and Hidden Fees
Not all HSAs are created equal. Some come with additional charges such as maintenance, transaction, and investment fees. If your HSA balance is relatively low, these costs can significantly reduce your savings over time. Be sure to review the fee structure of your HSA provider to avoid unpleasant surprises.
3. Contribution Limits
The CRA sets an annual contribution limit for HSAs, but many account holders unknowingly exceed it. Over-contributing can lead to penalties. If you realize you've contributed too much, ensure you withdraw the excess funds before filing your taxes to avoid fines.
4. Record Keeping is Essential
As an HSA holder, you're responsible for maintaining receipts and documentation to verify that funds are used for eligible expenses. Whether you store physical copies or use digital tracking tools, proper record-keeping helps ensure compliance and a smooth audit process if needed.
5. Dependency Considerations
Many HSA holders use their accounts to cover medical expenses for family members. However, it's essential to confirm that they qualify as tax dependents under CRA rules. If not, withdrawals may be subject to taxes and penalties. Understanding dependency criteria can help you avoid costly mistakes.
HSAs in Canada are a powerful financial and healthcare tool, but their effectiveness depends on your understanding of the dos and don'ts. By staying informed about these lesser-known insights and planning strategically, you can fully maximize the benefits of your HSA while avoiding unnecessary penalties and fees.
Disclaimer: The information provided in this blog or any linked material is not intended and should not be considered a substitute for medical advice, diagnosis, or treatment. For holistic health advice and consultation, visit My Well Self.
