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.

Read: Continue employee benefit tax exemption, health associations urge

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.

Read: Group benefits costs to spike 8% in 2017: Aon Hewitt

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.”

Read: Quebec proposes health tax relief for small employers

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.

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Joe Nunes:

Do I understand correctly that the cost of benefits will still be tax deductible to employers but it will become a taxable benefit to employees?

If that is the road that the government is visualizing then it won’t take long to ruin the employer sponsored benefit business.

Currently, the business thrives on the tax advantage that you can give different employees different values but they all get more than the are taxed upon. Start taxing and it won’t be long before the low users will ask to opt out and ‘take cash instead’ which will lead to a cycle of anti-selection where high users will be hit with a taxable benefit for which they cannot afford the taxes.

Add this to the bad idea’s our government comes up with

Friday, January 06 at 11:10 am | Reply


Yes, Joe is right–a bad idea–but what did we expect gov’t to do? Industry and consultants have failed miserably at containing costs owing to the conflicts of interest, with the result that this last true tax write-off (sponsor deducts the contributions/premiums, employee’s taxable income isn’t affected and the benefit is received tax free) is one big Matterhorn of a tax assessment base. be glad that the holiday has lasted as long as it did. Besides, the health contracts have become so restrictive as to pay outs, that it isn’t insurance anymore anyway.

Friday, January 13 at 2:02 pm

Siegfried Schleich:

Yes. Health care benefits should be taxable as regular income.

Right now, employees with a benefits plan receive additional income, tax free, to pay for non-covered medical treatment. Employees who do not have a benefits plan pay for non-covered health care services with after tax money.

The taxation system should treat all Canadians equally.

Friday, January 06 at 11:37 am | Reply


That’s not entirely true, Siegfried, there is a medical expense tax credit for non-covered health care services. What would be fairer would be for the government to eliminate the 3% “deductible” on the medical expense tax credit and limit the deduction for employers and the self-employed to a reasonable amount, say $2,400 per adult and $1,200 per child. The self-employed deduction limit hasn’t been raised since it was implemented and health insurance premiums have increased substantially.

Friday, January 20 at 5:17 pm

chris edgell:

For self employed clients, and commission paid clients who haave individual helath and dental coverage, I find that they are opting to consider self insurinance by signing up for available healthcare spending accounts. The view is that all the money can be recived tax free and then spent on HSA plans. Where will HSA plans be positioned if taxation of Health and dental plans is enacted?

Friday, January 06 at 11:44 am | Reply


They’ll be taxed.

Friday, January 13 at 1:55 pm

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