Everything You Ever Wanted to Know about Group Benefits Taxation

Karen Taylor Smith is the Senior Manager, Group Benefits at The Benefits Trust. She has worked with The Benefits Trust since 1997, using her deep knowledge of employee benefit plans to customize the right solutions for businesses. Karen speaks, blogs, and contributes regularly to various media outlets on group benefits and compensation topics.

Everything You Ever Wanted to Know about Group Benefits Taxation

Which taxes apply to
ASO group benefits plans in Ontario?

  • Premium Tax = 2.0%
  • Provincial Insurance Tax = 8.0%
  • HST = 13.0%

Premium Tax on ASO Benefits PlansSave on Benefit plans

Premium tax is determined for each employee based on that employee’s province of residence.

Premium tax on insurance products (Life Insurance, AD&D, Dependant Life, Critical Illness, Long Term Disability, Stop Loss, Out of Country Emergency Medical) is built into the insurer’s retention.  It is included in the sold rate by the insurer.

Self-funded Extended Health Care, Dental, and Health Care Spending Account contributions are also subject to premium tax, which is billed separately instead of being built in to the budgeted rate.

Provincial Insurance Tax on ASO Benefits Plans

Like premium tax, provincial insurance tax is determined per employee based on the province of residence.

Provincial insurance tax is relatively straightforward. It applies to all benefits contributions and premiums.

HST on ASO Benefits Plans

The HST of 13% applies to the administration fee (which may be included in the medical and dental contributions) and the premium tax.

This is consistent with the former application of GST, which was also levied on the administration fee and premium tax. The CRA has not changed this calculation since the introduction of the HST. As such, HST is treated as an input credit in the same way that GST was treated.

Taxability of Premiums for Employees

Any employer-paid portion of Life Insurance, AD&D, & Critical Illness premiums are considered a taxable benefit to the employee. Taxable benefits are included in the employee’s T4 on an annual basis.

Employer-paid premiums for all other lines of benefit are not considered taxable.

Taxability of Benefit Payments

Reimbursements of Extended Healthcare, Dental, or Health Care Spending Account claims are a tax free benefit to the employee. Proceeds of benefits such as Life Insurance, AD&D, Dependant Life & Critical Illness are also a tax free benefit to the employee or beneficiary. If there is no beneficiary designated, the proceeds could be subject to estate taxes.

Short Term Disability & Long Term Disability benefits are taxable when received if the employer pays any portion of the premium. When the employee pays the disability premiums through payroll deduction, disability payments would be non-taxable.

>> If you have any questions about group benefits plans taxation, please don’t hesitate to contact The Benefits Trust today.

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