In the past, Health Spending Account claims were exempt from taxes. This still holds true for most provincial governments. Unfortunately, Ontario applies unique provincial taxes to the HSA product.
Their provincial government charges taxes on Health Spending Accounts and “insurance premiums” in various ways:
There is a 2% special Premium tax and 8% RST on the claimed amount. A 13% HST is also charged on the administration fee amount.
Example of a $1,000 claim in Ontario
The claims are based off Olympia Benefits products. For more info, visit the pricing page.
Olympia HSA Deluxe / Plus / Basic
Premium tax: 2% of $1000 ($20)
RST: 8% of $1000 ($80)
No HST because these specific plans charge no administration fee
Claim Total: $1,100
Olympia HSA Group
If you choose a plan with an administration fee on claims, here’s how taxes would be charged:
[A] Claim: $1,000
[B] Olympia 8% administration fee: $80
[C] Subtotal: $1,080
[D] 2% Premium Tax on [C:] $21.60
[E] 13% HST on [B]: $10.40
[F] 8% RST on [A]: $80
[F] A+B+D+E = F = $1,192.00 = Claim Total
These tax calculations are built into Olympia's platform when residents from Ontario make a claim. The taxes collected by Olympia go to the government. It is important you choose a provider who does this for you or are aware and pay for the taxes yourself.
Are unincorporated businesses eligible for a Health Spending Account?
The second key rule about Health Spending Accounts that many do not know is regarding sole proprietors. Unincorporated Businesses are not eligible for an HSA unless they have at least one arm's length employee. If a sole proprietor with an existing HSA terminates their arm’s length employees, they must close the plan as it is no longer valid. On the other hand, incorporated businesses are eligible regardless of the employee count (eligible even if it is operated by only the owner).
Download our FREE Guide to Health Spending Accounts:
Got arm's length employees? Download the Employee Benefits guide: