Tax Question:
Is this the end of Health and Welfare Trusts?
Facts:
A Health and Welfare Trust (HWT) is a trust established by an employer for the purpose of providing health and welfare benefits to its employees. The 2018 Federal Budget announced that CRA will no longer apply their administrative positions with respect to Health and Welfare Trusts after the end of 2020.
Discussion:
Transitional rules will be added to the Income Tax Act to allow these trusts to convert to an Employee Life and Health Trust (ELHT) and be subject to the income tax rules for these trusts. HWT’s will either need to be wound up or converted to an ELHT by December 31, 2020.
Perceived abuse of the categories available to owners is likely the reason the HWT is being phased out.
| HWT | ELHT | Traditional Extended Health |
| Many classes of employees that could favour owners class over non-owners class. | Fewer classes and strict controls requiring owners to receive the same as employees. | Multiple classes of employees. Owners benefit is to be within reason. |
| Self insurance and thus eliminates the middle man resulting in lower costs. | Self insurance and thus eliminates the middle man resulting in lower costs. | Employer is paying costs to the insurance company for the benefit package. |
| Broad definition of benefits can allow employees to claim services like Naturapathic care that might not be covered under traditional extended health. | Broad definition of benefits can allow employees to claim services that might not be covered under traditional extended health. | Narrow definition of benefits resulting in limited or no coverage of some health services. |
| Usually 100% reimbursement up to an annual limit (no separate limit per expenses category). | Usually 100% reimbursement up to an annual limit (no category limits). | Usually partial reimbursement up to annual limit per category. |
Dawn Loeffler, BA (Hons), CPA, CA
Manager, Gilmour Group CPA’s
Email: faqs@gilmour.ca
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