The possibility of taxing employer paid group benefits was raised last year, when the government’s report on federal tax expenditures calculated that doing so would add $2.9 billion to the federal coffers in 2017.
The current tax exemption for employee benefits was introduced in 1948 and the deduction for self-employed individuals was introduced in 1998. Both of these measures were put in place to “improve access to supplementary health and dental benefits” the report notes.
Taxing employee benefits will likely result in fewer employers offering benefits, which can also affect employees who may have trouble securing alternate coverage at affordable prices because of pre-existing conditions.
The final result of this tax could result in a large number of Canadians losing their health coverage, and that will have pretty significant impacts on the health status for those individuals.
What would this mean for Employees:
Currently as many as 13.5 million Canadians have lower tax bills because health and dental benefits are not treated as taxable outside of Quebec. If this tax exemption was removed, any benefits received to an individual through their employee sponsored plans (for example dental bills, prescriptions, etc. ) would be treated as income and taxed as such.
Currently all of these reimbursed benefits through employer sponsored plans are not considered taxable income.
The rationale of removing this exemption is that it does not treat all remuneration equally. Most other employee benefits are taxed – for example, life insurance paid by employers are report on employees’ T4 slips and included in taxable income. Similarly, a car paid by an employer is taxed.
What would this mean for Employers:
The impact may be a spike in group benefits costs of 8%
Associations representing health-care providers argued that taxing benefits would mean employers would limit their offerings, which is what happened in Quebec when they introduced a benefit tax in the early 2000’s. The associations also pointed out that when Quebec introduced a tax on health benefits in 1993, employer-sponsored benefits dropped by roughly 20 per cent. Among small employers, that number rose to 50 per cent.
When benefits are subject to taxes, younger and healthier employees given the choice may opt out of participating. With older and sicker employees opting in, premiums will rise. Employers who continue to offer these plans may reduce coverage to control costs.
In addition, having fewer employers participating in plans would reduce pooling effects and costs for the remaining plan sponsors would spike.
Continue employee benefit tax exemption
At ProPath Insurance we believe that the government should not remove the health and dental benefit tax exemption. The repercussions of taxing employee benefits will not only affect a huge number of Canadians in accessing the healthcare services that they need , but will result in a shift of millions of dollars worth of treatments into public budgets. This would eliminate any actual monetary benefit derived from taxing these benefits.
You can learn more about the Federal Governments review as well as take action by sending a direct message to your local MP through the following website:
If you would like to discuss how this could impact your personally or would like a review of your current employee benefits, please feel free to contact Glenn Davis directly at: firstname.lastname@example.org