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Québec and Ontario sales taxes on group employee benefits

Employee benefits are subject to provincial sales in both Ontario and Québec, at 8 and 9 percent respectively. These sales taxes only apply to coverage provided through group plans so, for example, term life insurance provided to just one individual is not subject to tax. These taxes are separate from the normal HST, GST or QST that apply in these provinces. These taxes apply to both employee and employer payments of premiums for the coverage or benefits supplied.

The question is, what happens when the employee lives in one of these provinces and the employer is established in the other? Which tax applies. The answer, as you will see below, is not straightforward and depends on whether the employer is resident in that province, whether the coverage is provided through an insurance contract or is self-insured, whether coverage applies to employees, former employees or retirees, and in some cases, also on the type of benefits.

The following chart is structured to show that requirements that apply, whether the tax concerned is the Ontario tax or the Québec tax. For example, the phrase “resident employers” in the chart below means, when looking at the Ontario requirements, employers resident in Ontario. When looking at the Québec requirements, this means employers resident in that province. Mostly this works because there is very little difference between the two requirements. However, there are minor differences, which are noted below:

Employee Group Benefits

Employer Premiums

Employee Premiums

Which Employers

Which Employees

Which Premiums for These Employees

Insured benefit coverage

Resident employers

For employees, based on the province of employment; for non-employees, based on the province of residence

All premiums paid by the employer

Only residents are liable to tax, on any payment toward coverage or benefits received. Québec residents are also liable for any premiums paid by non-resident employers. Ontario residents are liable to pay tax on premiums they pay to non-resident employers

Non-resident employers (Ontario only)

Tax on employer premiums only applies to non-employees, based on the province of residence

Self-insured, benefit plans, funded and unfunded

Resident employers

For employees, based on the province of employment; for non-employees, based on the province of residence

For Ontario, no tax is payable on premiums that relate to coverage which is a CRA taxable benefit. For Québec, no tax is payable on wage loss replacement plans, whose benefits would be MRQ taxable when paid to employees

Non-resident employers (Ontario only)

Tax on employer premiums only applies to non-employees, based on the province of residence

 

Example: Sophie is an Ontario resident. She lives near Cornwall, in eastern Ontario, and commutes to work every day near Pincourt, on Île Perrot, which is just west of Montréal Island. Her employer provides a variety of employee group benefits, including group term life insurance, extended medical care and short-term disability. All of these benefits are provided through an insurance carrier. The cost of these benefits are shared equally between Sophie and the employer. Since the province of employment is Québec, the employer must pay 9% Québec sales tax on the employer portion of the premiums related to Sophie’s coverage. If the employer is also resident in Ontario, Sophie must pay 8% Ontario sales on her payments to the employer for the benefits and coverage received. If the employer does not carry on business in Ontario, Sophie is responsible for remitting this 8% sales tax directly to the Ontario government. Since she is not a Québec resident, Sophie owes no sales tax on these benefits to the Québec government.

The major difference between the two regimes deals with premiums paid by non-resident employers. Only Ontario claims this tax on the premiums paid by non-resident employers. But, for Québec purposes, a Québec resident is liable for both the employee and employer premiums related to any group benefit coverage provided by a non-resident employer. By contrast, Ontario residents are only liable to pay any premiums they pay to a non-resident employer, not the employer’s own premiums. For self-insured benefits, there are also differences between the group benefits, whose premiums are exempt from these sales taxes.

Alan McEwen & Associates
armcewen@cogeco.ca

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Alan McEwen

Payroll consultant at Alan McEwen & Associates
Alan R. McEwen‘s involvement in payroll spans over 20 years. As a practitioner, he has implemented and managed outsourced payroll operations for both large and small employers. As a consultant, he has worked with many organizations, public and private, on HR/payroll process re-engineering, strategic systems decisions and forensic payroll audits. Read more
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