Ontario Health Spending Account (HSA) Rules

Ontario Health Spending Account (HSA) tax rules are unique. Employers should be aware that although there are several Canadian Health Spending Account providers to choose from, not all providers will adhere to local provincial rules when it comes to remitting the necessary provincial taxes – and this could leave you holding the bag when the tax man arrives.

What makes Ontario Health Spending Account Rules Unique?

In Ontario, Health Spending Accounts (also known as a Private Health Services Plans) function the same way as in other provinces (excluding Quebec): they are an easy, cost-effective, and popular way to offer health benefits to employees. HSAs in Ontario also adhere to federal income tax rules, efficiently converting the personal health expenses of employees into a business write-off for their employers. However, Ontario HSAs differ markedly when it comes to provincial sales tax. This not only increases the cost of plans, but can also create an unforeseen tax liability if HSA plans are not set up correctly.

Ontario Health Spending Account Sales Taxes:

In Ontario the following sales taxes are applied to Health Spending Accounts (Private Health Services Plans)

  1. Retail Sales Tax (RST) of 8% applied to health claim amounts (the health expenses submitted by employees).

  2. Provincial Premium Tax (PPT) of 2% applied to health claim amounts and the administration fee.

  3. HST/GST applied to plan administration and other service fees. Unlike the first two taxes, HST/GST is applied in all provinces.

Sample Calculation for a Plan Administered by EasyHSA

For a Health Spending Account administered in Ontario by EasyHSA, a $100 eligible health expense submitted by an employee will cost the employer $100 plus our $5 administration fee, plus $8 RST, $2.10 PPT, and $0.65 HST, for a grand total of $115.75. We in turn reimburse the employee their full $100 and remit all taxes to the provincial and federal governments.

Not all Canadian HSA Providers Charge Provincial Taxes:

Unfortunately, not all Health Spending Account Providers in Canada charge RST and PPT on Health Spending Account Plans for their Ontario customers.

At first this might seem like bonus savings for the customer, but it is not. The Ontario Ministry of Revenue states explicitly that if a Health Spending Account administrator is not collecting RST and PPT, then the onus is on the employer to register for RST and PPT accounts, and to remit the taxes on a regular schedule or face penalties. Importantly, the requirement to remit RST and PPT is not dictated by the home province of the Health Spending Account provider, but is instead based entirely on the home province of the employer purchasing the service.

Health Spending Account providers are not obliged to remit RST and PPT and face no penalties for not doing so. Nor are they obliged to let their customers know that RST and PPT should be charged and remitted at all. One of our own customers was surprised to learn that their former Health Spending Account provider had not been charging and remitting the required taxes, and disappointingly, had failed to mention that by not doing so, the customer themselves were then legally required to.

Why wouldn’t all Canadian Health Spending Account providers follow the rules? One possibility is that some out-of-province providers may simply be unaware of the (somewhat complex) tax rules in Ontario. Another possibility is that a provider with only have a few customers located in Ontario might not feel motivated to go through the extra hassles of registering, collecting and remitting RST and PPT, despite the fact that there is no “small provider” rule exempting them from doing so (as is the case with HST/GST). However, if providers choose not to register and remit, they should inform their Ontario customers that the requisite tax burden is instead transferred back to them. Unfortunately, this information would surely scare away customers, and so without a legal obligation to do so, there exists a strong incentive to simply “forget” to mention it, or to disingenuously assume that their customers are already aware of the tax implications.

Despite the extra provincial sales taxes, Health Spending Accounts in Ontario remain an excellent tax-saving opportunity for employers, and a much-loved health benefit for employees. Nevertheless, Ontario employers searching for a Health Spending Account should feel a strong motivation when comparing providers to select one who not only charges and remits the appropriate sales taxes on their behalf, but who can also provide the most cost-effective Health Spending Account plan possible.

As an Ontario-based provider ourselves, we recognize the special needs of our Ontario customers. This is why we offer the most cost-effective and rock-solid Health Spending Accounts anywhere in Canada, with only a 5% administration fee, and absolutely no other charges or hidden fees.