When setting up a Health Spending Account (HSA) and/or Wellness Spending Account (WSA) for a client in Ontario, it's crucial to understand the different taxes applied to administrative fees and claim amounts. Here's a detailed breakdown to help you navigate these costs.
Taxes on the Administrative Fee
For HSA claims, the administrative fee is subject to two taxes:
Harmonized Sales Tax (HST): 13%
Insurance Premium Tax: 2%
Total taxes on the administrative fee: 15%
However, as clarified in the provided RST interpretation, if any portion of the administrative fee is subject to HST, it is exempt from Retail Sales Tax (RST). Ensure that all components of the administrative fee subject to HST are documented correctly, as only the non-HST-covered portion may incur RST.
Taxes on the Claim Amount
For the actual claim amount in HSA claims, the following taxes apply:
Retail Sales Tax (RST): 8%
Insurance Premium Tax: 2%
Total taxes on the claim amount: 10%
The document clarifies that RST applies to the benefit claims paid to members if the plan is designated as an “unfunded” benefits plan. It’s essential for clients to specify in writing whether their plan is funded or unfunded, as this impacts the tax application.
To simplify the total cost for clients, including taxes and fees, consider using a standard 10% administrative fee as an example. Under this scenario, the total cost per claim (including the administrative fee and taxes) amounts to 21.5%. Ensure this calculation accounts for any applicable exemptions, such as HST-covered administrative fees being exempt from RST.
WSA Claims in Ontario
It's important to note that the above tax rates apply specifically to HSA claims. For WSA claims in Ontario, only the HST of 13% is applied to the administrative fee, making it simpler and less costly in terms of taxation. RST does not apply to WSA claims since they do not fall under the definition of “benefits plans” subject to RST.
Key Notes and Tools
To assist with specific calculations, we've provided a tax calculator (linked below!) This tool allows you to input custom claim amounts and administrative fees, breaking down the charges for your client comprehensively.
Additionally:
The claim amount, admin fee, and applicable taxes are all tax-deductible to the corporation.
Be mindful of designating whether a plan is funded or unfunded, as this affects the applicability of RST on contributions or benefit claims.
If you have any further questions or need additional assistance, please feel free to reach out.