Budget sets out tax rules for sickness and AD&D plans

It was a little-acknowledged paragraph in the federal budget, but Canada has made some changes regarding taxation for group sickness and accident plans that could have big consequences for employers.

According to the budget, effective March 29, 2012, employer-paid premiums for critical illness insurance and accidental death and dismemberment insurance for coverage in 2013 and beyond are now a taxable benefit, says Tim Clarke, health and benefits innovation leader with Aon Hewitt.

“This will impact all employer plans that offer these benefits, either through traditional insurance arrangements, or in flexible benefit plans where employees may pay for benefits with employer-provided flex dollars,” Aon Hewitt said in a statement. “Changes to both employee communication materials and administrative systems will need to be made to reflect this change.”

The change will not impact the tax treatment of private health services plans such as medical, dental and prescription drug plans and health spending accounts, which will remain non-taxable benefits for federal income tax purposes.

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