Releases draft legislative proposals that would alter Income Tax Act
Finance Canada has released revised draft legislative proposals for the rules that apply to Employee Life and Health Trusts.
The department is proposing changes to the Income Tax Act that fall into three categories:
- amendments to facilitate the conversion of existing Health and Welfare Trusts into Employee Life and Health Trusts
- amendments to improve the operation of the Employee Life and Health Trust rules
- amendments to relax the current restrictions under which “key employees” may participate in an Employee Life and Health Trust.
Conversion of trusts
To facilitate the conversion into Employee Life and Health Trusts, the department proposes that the trust rules be extended to apply to trusts created prior to 2010.
Ottawa also wants existing trusts to be permitted to convert to Employee Life and Health Trusts without any adverse tax implications and without having to create a new trust.
The department also proposes that transitional rules permit Health and Welfare Trusts to elect to be deemed Employee Life and Health Trusts until Dec. 31, 2022, if certain conditions are met, since many Health and Welfare Trusts will need time to amend their current trust terms
To improve the operation of the rules applicable to Employee Life and Health Trusts, the department proposes to expand the list of “designated employee benefits” to include certain counselling services and death benefits of up to $10,000.
The government also calls for permitting employers to offer certain other types of benefits provided that all or substantially all of the total cost of benefits is for designated employee benefits and that the employer contributions in respect of those other benefits would otherwise be deductible in computing the employer’s income under the act had the employer directly paid for the benefits.
Key employees participation
It’s also suggested that the current restrictions on the participation of “key employees” (who may not exceed 25 per cent of employee beneficiaries) in an Employee Life and Trust not apply if either of the following conditions are met:
- The benefits provided to key employees who deal at arms length with their employers are negotiated under a collective bargaining agreement.
- The total cost of private health services plan benefits paid to each key employee (and to each family member of a key employee) does not exceed $2,500 each year, prorated if the key employee did not render service on a full-time basis throughout the year.
