• Tim Kane

HSA's for Sole Employees

Updated: Aug 18

We recently received the question "are PHSP's/HSA's suitable for a sole employee, who is also a shareholder?" An advisor sent us this question after reading this tax update that was sent to them by a client’s accountant. Although the writer does bring up some valid points on the plans, there seems to be a lot of confusion between a “cost plus plan” and a true “PHSP” plan. A PHSP (HSA) and Cost Plus plan, although conceptually alike (cost plus fees), the treatment of the two plans in the practical market are different. For clarification, myHSA is a platform for PHSP plans, not Cost Plus. A Cost Plus plan usually has a very high limit (or no limit) with little structure and is only offered to shareholders. Whereas a PHSP is a structured employee benefit provided to employees of the organization and the owner, under the consideration that certain conditions are met. It is important to mention that a PHSP can only be provided to an active employee of an operating company. This does not include passive income or holding companies.

In the paragraph below, they mention a single shareholder reimbursing themselves for medical expenses. This is not exactly true in the case of a corporation with one employee/shareholder, as the Corp is a third party and is reimbursing their employee for medical costs under a structured benefit plan. If they are talking about an unincorporated sole proprietorship, we agree with this comment; however, an unincorporated sole proprietor (with no arms length employees) cannot have a PHSP/HSA.


There is mention of a Cost Plus being the same as a PHSP/HSA, so I would like to provide our comments on the differences in structures. For the record, we completely agree that Cost Plus plans as described for the owners are offside. We have previously provided commentary on this.

The Cost Plus arrangement, in our mind, is an unlimited (no risk) structure where the employee is reimbursing themselves for medical costs to an unlimited amount . This is not a structured PHSP/HSA like one that would be set up with myHSA. In our program, there is an annual limit chosen by the employer at the beginning of the year (which is considered reasonable based on the owner’s employee status rather than their shareholder status) this limit creates the element of risk – should the employee’s expenses exceed their limit, the limit is not adjusted. So, although the cost structure is a cost plus fee arrangement, the fundamentals of an unlimited cost plus plan versus and PHSP/HSA are different. In our view, the unlimited Cost Plus plan with no structure, limit etc., are off side from a CRA prospective. I have attached a document from on Owner/Shareholder perspective. This is provided to ensure that clients are well informed on whether the plan they are contemplating will be considered a shareholder benefit (which is offside), or a true PHSP/HSA, which is a benefit plan provided for the employee based on fair compensation for their role within the organization, regardless of share holdings.


The CRA confirms that single shareholder/employees can have a PHSP/HSA, and this is documented with the CRA wording providing clarification for this. The caveat is that the CRA will always look first at this structure as a shareholder benefit, unless the employee can display that the plan was given as a fair compensation for that person in their capacity as an employee (not a shareholder), that the company is an operating company (not just passive income), and that the owner is an active employee within the organization.

In closing, the CRA will always look first at the Shareholder’s HSA as a shareholder benefit, unless the company can demonstrate that the plan was given as a fair compensation for that person in their capacity as an employee (not a shareholder), that the company is an operating company (not just passive income), and that the owner is an active employee within the organization.



Tim Kane

CEO & Founder

myHSA













Source: Canada Revenue Agency




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