Harmonized Sales Tax (HST)
Impact on Group Benefits
The new HST covers new (Ontario and British Columbia) and increased (Nova Scotia) Harmonized Sales Taxes effective July 1, 2010.
Ontario: HST will be 13% (ON portion 8% plus 5% GST)
British Columbia: HST will be 12% (BC portion 7% plus 5% GST)
Nova Scotia: HST will be 15% (Increase of 2% over current 13% rate)
Tax change questions on the impact on Group Insurance Programs:
1. Have the tax rules been finalized at this date?
Most of the required legislation governing the application of HST to employee benefit plans has been introduced, although technical issues have been identified by the insurance industry that are being raised with the appropriate government officials.
It is our understanding that the applicable tax rate will be determined by the clients billing address, in most cases, but we will update or correct information if circumstances change.
2. Are all Group Benefits plans affected by the new Harmonized Sales Tax in Ontario and B.C.?
Administrative Services Only (ASO) plans without an insurance component and other fee-for-service type of products will continue to attract HST but more plans will be impacted now that the tax will take effect in Ontario and BC. The GST/HST will not apply to insured plan premiums.
3. If a benefits plan is charged GST currently, will it be subject to HST?
Yes, if the billing address is in one of the participating provinces (ON, BC, NS, NB, NL) HST will be applicable.
4. If a benefits plan is currently charged Retail Sales Tax in Ontario, will it attract HST?
No, in general, a benefit plan currently subject to Retail Sales Tax in Ontario will not attract HST. However, this is not the case for a pure ASO plan. Pure ASO plans that are currently subject to Retail Sales Tax in Ontario will attract HST on the administrative fee portion. It is important to note that the Retail Sales Tax in Ontario will continue to be charged on premiums for insured plans. There are no changes to these rules at this time.
5. What other types of benefit plans will be impacted by the HST?
There are a number of benefits that may be included in a benefit plan that are subject to HST. Employee Assistance Plans (EAP), executive medicals (Medcan), third party disability management services are examples of programs that are currently subject to GST and effective July 1, 2010 will be subject to the 13% HST.
6. What changes will B.C. plan sponsors see?
Based on the information above, B.C. plan sponsors who currently pay GST on some aspect of their plan will attract HST. B.C. does not currently apply PST to insured plans.
7. How will the tax apply if a plan has members in more than one province?
Provinces now have various tax systems and rates. Based on a federal government general rule announced in February and introduced April 30, the tax will be assessed on the billing address associated with any given bill.
A client with a head office and billing address in Ontario will be charged 13% HST on
the ASO fees. A client in Alberta will be charged 5% GST. For a client with multiple billing addresses, each bill will carry itsown rate based on province of the individual
8. How many provinces will have HST after July 1?
HST will be applicable in Newfoundland and Labrador, Nova Scotia, New Brunswick, Ontario and British Columbia. Quebec has its own version of a harmonized tax that results in two taxes being applied – the GST and the Provincial QST (also known as TVQ).
9. Will these provinces all work under the same HST billing rules?
All provinces with HST, as well as Quebec, will apply the billing address rule mentioned above.
10. Will tax submission to the government change?
HST is administered by the federal government. The provincial component of the HST for Ontario and B.C. will now be submitted to the federal government along with other GST and HST.
11. Will input tax credits apply?
Most groups will be able to claim input tax credits or rebates for the new HST. However, since some groups will be unable to claim input tax credits, business owners should contact their tax specialist to understand how these will apply to their business.
12. Consultant/Advisor fee charges to clients are they impacted by HST?
Only the fees charged on a fee for service basis which are currently subject to GST are impacted, and the tax applicable will rise from 5% to 13% for these services. The fees that are built into an insured plan rate structure are not subject to HST and are currently not subject to GST.
Tax Change Questions on the impact on Group Retirement Plans:
• Expenses charged to investment funds and all investment management and advisory fees are subject to HST in Ontario, B.C., Nova Scotia, New Brunswick and Newfoundland and Labrador.
• HST applies to GST-taxable services that are charged to investment funds as well as any investment management or advisory fees that are paid outside of the fund
• HST applies to other services already subject to GST; for example annual trustee fees for RRSP’s and DPSP’s and any member administrative fees billed to the employer
• A higher tax rate for investment funds means that the funds incur an increase in costs, and so will sponsors and members, where these costs are paid by them.
HST will not impact the majority of group insurance plans that are fully insured. The area of impact is in the administration fee for Pure ASO (self insured plans) plans which are already subject to GST and typically represents a small portion of the overall plans costs as well as services that are provided (i.e. EAP) that are currently subject to GST. In addition HST will have an impact on retirement plan investment
management and administrative fees.
Only half of the increase will be felt in 2010, due to the timing of the change. Exact details on how HST is applied to the above services aren’t fully known and the government has yet to publish the final regulations. We’ll update you further once the details are confirmed.
The Leslie Group is a full service employee benefit consulting firm that is, in keeping with the market conditions and legislative changes, committed to providing you the best advice needed to manage your groups benefits program.
Should you have any questions or require clarification please contact The Leslie Group Limited at (416) 510-8966.