Krieger + Associates Benefits Consultants - Group Benefit and Pension Consulting and Employee Communications in Toronto

JANUARY/FEBRUARY 2010

HST’s impact on Employee Group Benefits

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The HST (Harmonized Sales Tax) will be effective in Ontario and BC on July 1, 2010!

What is HST?
HST is the blended (harmonized) tax of the current 5% Goods and Services Tax (GST) and the 8% Retail Sales Tax (RST). Nova Scotia, New Brunswick, Newfoundland and Labrador, Nunavut, the Northwest Territories, and Yukon Territory have previously adopted an HST. Studies have indicated that the cost of goods to consumers actually declined when the HST was implemented in the Atlantic provinces, as savings resulting from (a) the elimination of sales tax throughout the various business transactions and (b) the application of HST input credits were reflected in retail pricing.

How will taxes apply to Employee Group Benefits?
The impact on benefits will be limited as detailed below. Note the following illustrations reflect Ontario Retail Sales Tax rules.

1.	Premiums paid under an insurance arrangement will continue to attract the 8% RST.
	Example:	Basic Life Rate Benefit Volume Monthly Premium RST Total Premium	= $0.08 per $1,000 of benefit = $750,000 = $60 ($750,000 x $.08 / $1,000) = $4.80 ($60 x 8%) = $64.80

2.	Deposits under ASO accounts with an insurance element (Stop Loss, Large Amount Pooling) will continue to include 8% RST applicable to reimbursed claims and administration fees.
	Example:	Paid Health Claims RST ASO Admin Fees RST on Admin Fees Stop Loss Premium RST on Stop Loss Total ASO Deposit	= $50,000 = $4,000 ($50,000 x 8%) = $3,750 ($50,000 x 7.5%) = $300 ($3,750 x 8%) = $1,250 ($50,000 x 2.5%) = $200 ($1,250 x 8%) = $59,500

3.	Deposits under Pure ASO accounts (no insurance element, like Spending Accounts) will continue to include the 8% RST applicable to reimbursed claims and administration fees; the current GST payable on the administration fees will change to HST.
	Example:	Paid Health Claims RST ASO Admin Fees RST on Admin Fees Current GST on Admin Fee Stop Loss Premium RST on Stop Loss Total Current ASO Deposit Revised HST on Admin Fee Total Revised ASO Deposit	= $50,000 = $4,000 ($50,000 x 8%) = $3,750 ($50,000 x 7.5%) = $300 ($3,750 x 8%) = $187.50 ($3,750 x 5%) = $1,250 ($50,000 x 2.5%) = $200 ($1,250 x 8%) = $59,687.50 = $487.50 ($3,750 x 13%) = $59,987.50

4.	Employee Assistance Program (EAP) premiums currently require the inclusion of GST at 5% in Ontario. This benefit will become subject to the HST at 13%.
	Example:	EAP Rate Total Members EAP Premium Current GST Total Current Premium Revised HST Total Revised Premium	= $2.00 per member = 1,500 = $3,000 = $150 ($3,000 x 5%) = $3,150 = $390 ($3,000 x 13%) = $3,390

5.	Consulting Fees which are currently subject to GST will become subject to the higher level HST, but they will continue to be eligible for input tax credits.

Medical services that employees claim under the benefit plan will now be subject to HST, instead of GST. For example a $60.00 massage claim would currently attract $3.00 in GST. The HST will increase the cost of this claim from $63.00 to 67.80, which will erode the value of benefit limits under plans, as employees will receive less treatment for the same cost.

HST as a Tax Credit
As is the case with GST, employers may be able to recover the HST paid as an input tax credit to offset the HST owed and, as noted in the study mentioned above, it may actually reduce the overall cost of the plan. Employees will not have access to the same accounting, so the HST will increase their costs when purchasing covered services and reduce their buying power.

Contact K+A to answer any questions specific to your Group Benefits Plan.

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