Health Spending Accounts (HSAs) are a powerful tool for providing tax-efficient health benefits to employees. In this post, we’ll explain how Health Spending Accounts are taxed across Canada. The total cost of administering HSAs can vary significantly depending on the province, due to differences in taxes applied to claims and administration fees.
How Health Spending Accounts Are Taxed Across Canada
Understanding how Health Spending Accounts (HSAs) are taxed in Canada is important for both employers and employees. Employer contributions to an HSA are fully tax-deductible business expenses, while employee reimbursements are received as non-taxable benefits—provided the plan meets Canada Revenue Agency (CRA) requirements. The only exception is Quebec, where different tax rules apply.
The taxation of HSA claims and administration fees varies by the employee’s province of residence. For all provinces other than Ontario and Quebec, only GST/HST applies to the administration fee, resulting in a relatively low tax impact.
Here’s a breakdown of what $1,000 in health spending looks like across Canada, assuming a 7% admin fee:
Accounts Are Taxed Across Canada
| 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 |
| Nova Scotia | $1000 | $70 | HST 14% on admin = $9.80 | $1,079.80 |
| 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: Taxed Across Canada
- 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% or 14% for NS 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.
Read more: A Journey Through The History Of Health Spending Accounts In Canada
Conclusion: Health Spending Accounts are taxed across Canada
Understanding how Health Spending Accounts are taxed across Canada can help both employers and employees make smarter financial decisions. For businesses, HSAs offer a fully tax-deductible way to provide meaningful, tax-free health benefits to staff. For employees, they ensure access to essential healthcare expenses without increasing taxable income.
By using HSAs strategically, Canadian companies can reduce payroll costs, boost employee satisfaction, and comply with CRA guidelines. Whether you’re a small business owner or part of a larger organization, an HSA remains one of the most efficient and compliant tools for managing healthcare expenses and optimizing tax savings across Canada.
