Government Proposing Tax on Employer Health Benefits

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The media has recently reported that Federal Government is quietly weighing the idea of making employer health and dental plans a taxable benefit on your income tax. For the millions of Canadians with these plans, the move could add over $1000 to their taxes, depending on the level of funding provided by their employers.

The government is staying quiet about the plans in their upcoming budget, however, the Toronto Star reports that:

In a typical benefit plan, an employer contributes up to $3,500 a year — an amount that is currently not taxed, said Stephen Frank, senior vice-president of policy for the Canadian Life and Health Insurance Association

“If it becomes taxable, then the employee has to pay tax on that amount,” Frank said, adding that it could add about $1,300 a year to an individual’s tax bill.

http://on.thestar.com/2kRj1aE

Economists estimate that this move could generate billions in new tax revenues annually, and Prime Minister Trudeau has suggested that this money could be reinvested into a national pharma care programme.

The opposition parties, the public, and industry leaders are all opposing the move on the basis that such a move could discourage companies from providing health care plans altogether. This is widely seen as detrimental to employees in the private sector non-unionized jobs, who would be most affected by such a move.

The government argues that they are simply investigating the more than 150 tax credits available through income tax, to determine what is best for Canadians moving forward. They argue that health care benefits are really remuneration and should be treated as such. Most other employee benefits are taxed such as car allowances, phone allowances, or life insurance premiums. They are reported on T4 slips as income.

Quebec included health care benefits and dental plans as a provincial taxable benefit 15 years ago and found that the number of employers offering the plans dropped, and that often benefits were scaled back.