Tax Implications for Group Accident and Sickness Plans

In the Federal Budget released on March 29, 2012, the Government of Canada made some changes regarding taxation for Group Accident and Sickness plans that could have consequences for plan sponsors.

Although the implications are still being reviewed, it is important to note that the federal budget is not necessarily a clear document of proposed changes to an Act, but the government’s statement of intent that will be introduced in the House of Commons.  As such, from the time the budget is tabled, to the time it is ratified there could be a number of changes that will ultimately impact its final implementation.

taxaccountantBased on that caveat, the Federal Government seems to be indicating the following intent, which could impact Plan Sponsors. Employer contributions to any group Accident and Sickness plan, other than periodic income replacement, will be taxed as income to the employee starting with benefit year 2013. This could impact:

  • Group accidental death and dismemberment, and
  • Group critical illness.

However, changes will not affect the tax treatment of private health services plans.  If your employer makes contributions to a private health services plan for employees, there is no taxable benefit for the employees.

Plus an employer contribution that is in respect of a wage-loss replacement benefit payable on a periodic basis under the plan will continue to be non-taxable.

For further clarification, we recommend that you consult your tax advisor and or the Canada Revenue Agency (RCA) web page for help with the new rules that apply to RCAs and certain other employee compensation arrangements.

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