While most of the media focus recently has been on the carbon tax and its implication for households and businesses, the federal government has been quietly eyeing a number of changes to how we are taxed that are receiving far less attention.
And if you receive extended health, prescription and dental benefits from your employer you may want to pay attention to one of the ideas that has recently being floated. The government is apparently considering changes to how your employer’s contribution to those benefits are treated at tax time. And since the Liberals are claiming that no final decision has been made, now might be the time to weigh in with your MP before the change is quietly ushered in.
You may not realize it, but chances are that if you have a health and dental plan at work, your employer is paying some amount into the plan on your behalf every month that is in addition to the money they are taking off your paycheques. Many employers – both public and private – bear about half of the cost of the plans.
The government doesn’t treat that money paid by the employer as a “taxable benefit” – in the way it would if your employer gave you a car or a cellphone – and as a result employees don’t have to pay any tax on the portion that your employer paid into the plan for you (which is good because you the employee don’t actually see any of that money).
But that preferential treatment may be coming to an end.
How will that affect you in terms of dollars and cents?
Well, as with many tax changes, that depends on your “marginal rate” – or the amount in tax you would pay on each additional dollar you earn in a year and the amount the employer pays in for you. For example, if you are a Yukoner earning $50,000 a year your marginal rate would be 29.5 per cent for the 2016 year.
Group benefits are not inexpensive and it is not at all unheard of for an employer to pay about a hundred dollars a month – or about $1,200 a year – into the plan on your behalf. So, if the government followed through on the idea that amount would be taxed at 29.5 per cent, and you will be paying another $354 a year in tax – not an insignificant chunk of cash.
The change has been defended on the basis that the money paid by the employer into the plan is technically a “benefit” on you as an employee and it is not fair to all of the employees who don’t receive group benefits from their employer. The change is expected to raise about $2.9 billion in new revenue.
It is true that not all Canadians receive group benefits – particularly those working for small and medium sized businesses –but the number who do is not insignificant either. The National Post recently reported that 13.5 million Canadians would pay more in tax under the proposal.
And there would seem to be other ways to tackle the alleged inequity like improving on Canada’s inadequate medical expense deduction or allowing those who do not receive group benefits through work to deduct part of the cost of purchasing a private plan.
Critics of the change have also raised fears that the proposal will lead to employers cancelling their plans. And while it is not clear why that might be – after all it would be employees rather than employers who pay the new tax – Quebec claims that that similar changes at the provincial level led to the cancellations of some employer plans. If taxing such benefits does indeed lead employers to terminate the plan this is something the federal government ought to consider in its deliberations.
Why the government would look to plans which enhance Canadian’s access to health services and lighten the burden on families dealing with medical issues as a source of new revenue under the guise of fairness is indeed perplexing. I can think of few activities that call out for more taxation less than medical and dental services.
While I am not one to be reactively opposed to governments seeking out new sources of revenue a new tax on such useful benefit seems to be misguided. If the government is seeking new way to raise revenue, taxing employer contributions to group benefit plans seems to be the wrong way to go about it.
Since no final decision has apparently been made on the issue there is still time for the government to pop this trial balloon. I would suggest they do so.
Kyle Carruthers is a born-and-raised Yukoner who lives and practises law in Whitehorse.