Under New HST Car Insurance Rates Will Increase

One effect of the HST on car insurance is increased rates. The Harmonized Sales Tax(HST) will increase the taxes that companies have to pay, which will be passed on to consumers.

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Joel Ohman is the CEO of a private equity backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Jo...

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Reviewed by Joel Ohman
Founder & CFP®

UPDATED: Jun 2, 2020

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Here's what you need to know...

  • HST is a combined provincial and federal tax in Canada
  • Although car insurance is not specifically taxed, all the increased taxes that the company has to pay will end up being passed on to the consumer
  • You should compare car insurance quotes to try to get the best deal you can

Just three months into the new HST, car insurance rates in Ontario and British Columbia, Canada have not skyrocketed the 19 percent some experts had warned. Yet, Canadian drivers have seen their rates increasing.

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Various costs related to HST will have an indirect impact on auto insurance despite the denials by both provincial and federal officials. Read on for a complete understanding of HST and what it means for your car insurance premiums.

What is HST, car insurance notwithstanding?

In Canada, much like the U.S., sales taxes are assessed both by the federal and provincial governments. The federal government employs the goods and services tax (GST) while provinces assess provincial sales tax (PST).

Each entity assesses their tax in different ways and on different goods and services.

HST, which stands for Harmonized Sales Tax, changes that dynamic by combining GST and PST into a single tax. It was enacted by Ontario and British Columbia on July 1, 2010, and gets applied across the board to any goods or services already taxed by either authority.

Proponents of the HST plan have claimed that car insurance will not increase because it was never subject to either GST or PST to begin with.

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Are there hidden costs of HST that will affect car insurance?

Yes, there are hidden costs that will be assessed on previously untaxed goods and services under HST. Car insurance rates will ultimately rise as a result, despite what proponents claim.

For proof of this, one needs to look no further than what it costs your insurance company to do business. One example is rental fees on office space.

Prior to HST, car insurance companies in Ontario paid 5 percent GST on office space rental. After enactment of HST, this raises the tax 13 percent. That’s an 8 percent increase the insurance company must absorb for the remainder of its current lease.

Since the federal portion of HST is similar to a value-added tax (VAT), the property owner will be forced to raise the rent for the new lease period just to cover his own tax increase.

Can I assume that because of HST, car insurance will provide less coverage?

Close up of man opening car door with key.

Car insurance coverage will not likely decrease due to the simple fact that baseline federal and provincial standards must still be met, but it is possible that car owners will see increased deductibles or an outright rate hike.

Like the previously mentioned example of rental cost increases, repair costs for accident victims will rise under HST.

Let’s say a new bumper for a damaged minivan costs $500 to replace prior to HST. With a 5 percent GST, the total bill would come to $525. After July 1st, the 13 percent HST must be charged on both the parts and labor, raising the total cost to $565.

Someone has to pay the increase, and it won’t be your insurance company. They will increase either your deductible or your annual premium.

How high will my car insurance premiums go?

It’s difficult to say how high car insurance premiums will go, so be sure to get several car insurance quotes to compare those available to you!

With the addition of Ontario and British Columbia, five of Canada’s ten provinces now use the HST. Rates vary among them since the PST is different from province to province.

It may be, however, that national insurers will spread the increased costs over all their customers, rather than try to charge each one according to the costs of their province. Such a move might keep car insurance premiums down for now.

More and more governments are embracing the value-added tax system, which HST essentially is, because it allows them to raise revenue at every level of business.

In Canada, the implementation of the HST has allowed the federal and provincial governments to tap into previously unavailable revenue streams without openly raising taxes. The reality is, such policies raise the cost of everything consumers want or need.

Under the new rules of HST, car insurance in Ontario and British Columbia will cost more. It’s simply a matter of time until residents of those provinces find out how much the increase will be.

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