Health Spending Accounts (HSAs) are a powerful tool for providing tax-efficient health benefits to employees. However, the total cost of administering HSAs can vary significantly depending on the province, due to differences in taxes applied to claims and administration fees.
Here’s a breakdown of what $1,000 in health spending looks like across Canada, assuming a 7% admin fee:
| Province(s) | Claim | Admin (7%) | Taxes Applied | Total Cost |
|---|---|---|---|---|
| Alberta, BC, Manitoba, Saskatchewan, Yukon, NWT, Nunavut | $1,000 | $70 | GST 5% on admin = $3.50 | $1,073.50 |
| New Brunswick, Nova Scotia, PEI, Newfoundland & Labrador | $1,000 | $70 | HST 15% on admin = $10.50 | $1,080.50 |
| Ontario | $1,000 | $70 | PPT 2% on claim + admin = $21.40 RST 8% on claim = $80 HST 13% on admin = $9.10 | $1,180.50 |
Key Takeaways
- Western & Northern provinces (Alberta, BC, Manitoba, Saskatchewan, Yukon, NWT, Nunavut): Only 5% GST applies to the admin fee. Claims are tax-free, keeping HSAs very cost-efficient.
- Atlantic provinces (NB, NS, PEI, NL): HST of 15% is applied to the admin fee. Claims remain tax-free.
- Ontario: Unique in that claims themselves are taxed. On top of 13% HST on admin, Ontario applies 2% Premium Tax (PPT) on the claim + admin and 8% Retail Sales Tax (RST) on claims.
- Quebec: Quebec not only taxes both claims and administration fees, but also treats Health Spending Accounts (HSAs) as a taxable benefit, eliminating the primary advantage of an HSA. For this reason, we do not offer our services in Quebec.
Additional Points:
- Insurance premiums are typically taxed the same way, so there’s no escaping the tax man.
- Taxes are applied based on the employee’s province of residence, not the location of the business, so employers with remote or multi-provincial teams need to account for this in their planning.
Even with the extra taxes in Ontario, HSAs remain a flexible and valuable employee benefit compared to traditional insurance. For the rest of Canada (excluding Quebec), HSAs have minimal taxation, making them an easy choice. For employers expanding across provinces, it’s crucial to understand these differences so you know what to expect.
