Due to how expensive and limited Individual Health and Dental Plans are, many of my incorporated business owner clients choose to implement a Health Spending Account. This allows them to run their medical expenses through their corporation and deduct those qualifying medical expenses. This is much more tax-effective than paying for medical expenses with after-tax dollars.
Back in 2019 the CRA released a bulletin stating that Incorporated business owners are required to have a T4 income to have an HSA.
However, if you go to the bulletin now (Warning: Buyer beware when it comes to Health Spending Accounts – Canada.ca) you will find that line has been removed.
It seems that this online document has been altered by the CRA and it no longer states that an incorporated business owner must have T4 income.
Personally, having a T4 income is always recommended to help ensure one is viewed as an employee (even if this condition was removed from the bulletin). I believe that a Health Spending Account shouldn’t be looked at as a shareholder tax avoidance method, rather an employee benefit. As long as one is viewed as an employee, they can have an employee benefit. Typically, I leave it up to my client’s accountant to help them make the determination if they are considered an employee of their company or not.