Understanding Group Insurance Plan Taxation
There are three types of taxes that may be charged to employers with group insurance plans in Canada.
- Premium tax is levied on insurance premium by all provincial governments, and applies to premiums for group life, accident, disability, critical illness, extended health and dental coverages. These taxes are paid directly to each province by the insurance company and insurers factor the tax into the rates they charge for these insured benefits. Premium tax is not applicable to self-insured Administrative Services Only (ASO) benefits except in Ontario, Quebec and Newfoundland.
- Retail sales tax on insurance premium is also levied by the provinces of Manitoba, Ontario and Quebec only. ASO claims are treated the same as insurance premium in Ontario and Quebec.
- GST/HST/QST does not apply to insurance premium, or to claims paid on an ASO plan, but does apply to expenses charged on ASO plans. For most employers, these taxes will be refundable as input tax credits.
The first two taxes are levied based on the province of employment of each employee; the third category of tax is determined by the location of the employer.
As a result of the October 2015 Alberta Government budget, the premium tax in Alberta will be increasing from 2% to 3% effective April 1, 2016. This is the first increase in roughly 25 years. Premium tax in other provinces ranges from 2% to 4%.
Some insurers may implement the increase to the Alberta premium tax rate effective with their clients’ April billing; others will absorb the increase and factor the change when calculating the rates effective with the next renewal rate review.