In December, Benefits Canada reported that nine associations representing health-care providers are urging the federal government to leave private health and dental insurance as non-taxable benefits.
The possibility of taxing these benefits was raised late 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 government is “reviewing the tax system as a whole, and specifically tax expenditures, to ensure fairness, simplicity and effectiveness,” Annie Donolo, spokesperson for Finance Minister Bill Morneau, told Benefits Canada in an email. “We’re not looking at any measures in isolation – and it’s important to stress that no decisions have been made. During the course of pre-budget consultations we heard views, opinions and ideas which will form the basis for upcoming budget decisions.”
The tax exemption for employee benefits was introduced in 1948 and the deduction for self-employed individuals was introduced in 1998. Both these measures were put in place to “improve access to supplementary health and dental benefits,” the report notes.
The 1998 budget states “self-employed individuals owning an unincorporated business cannot deduct premiums paid for their own supplementary coverage, while owner-operators of incorporated businesses may receive tax-exempt coverage through their business. This is unfair.”
So beginning in 1998, self-employed Canadians could deduct up to $1,500 for health-care expenses for themselves and their spouse, and $750 per child.
In letters to Morneau, the health-care associations argued that taxing benefits would mean employers would limit their offerings, which is what happened when Quebec introduced a benefit tax in the early 2000s. Doing so, they said, would shift millions of dollars worth of treatments into public budgets.
“We’ve got some pretty grave concerns with any move to tax employee benefits,” says Stephen Frank, senior vice-president of policy at the Canadian Life and Health Insurance Association. He agrees the tax would likely result in fewer employers offering benefits, and notes some affected employees may have trouble securing alternate coverage at affordable prices because of pre-existing conditions.
“People need to really understand clearly what would likely happen: a large number of Canadians, potentially millions of them, will lose their health coverage, and that will have pretty significant impacts on the health status for those individuals, and then the system is going to have to find ways to address the impacts of that,” he says. “. . . We’re having lots of dialogue with government to make sure they understand the risks here and they don’t proceed in this manner.”
What do you think? Should the federal government reconsider eliminating the tax exemption for employer-sponsored heath-care benefits? Have your say here.
As for our last poll, which asked whether readers had used all their benefits for 2016, 68 per cent said they thought of their benefits as insurance and only used what they needed. Twenty-one per cent said they always maximize their benefits and book dentist appointments, massages and other treatments throughout the year. Another six per cent said they hadn’t yet used all their benefits, but had scheduled appointments before the year ran out. And the final six per cent said they simply don’t have enough time off to make it to appointments.