The federal government has published revised draft legislation for the Income Tax Act that would facilitate the conversion of existing health and welfare trusts into employee life and health trusts by 2022.
The latest draft legislation follows an initial proposal in the government’s 2018 budget and draft legislative proposals released in May 2019. It noted that the new provisions will ensure only one set of tax rules would apply to these arrangements, providing greater certainty and consistency to taxpayers.
The revised proposals would also amend the existing employee life and health trust tax rules to allow current health and welfare trust arrangements to continue to operate in a similar manner. They would also relax the current restrictions that apply to the participation of “key employees.”
Of particular note, the 2018 budget originally proposed the Canada Revenue Agency would no longer apply its administrative rules with respect to health and welfare trusts after the end of 2020. However, the latest proposal includes a one-year extension to those rules. Accordingly, the CRA will apply its administrative tax rules until the end of 2021.