Tax on employee dental and health benefits being considered

Federal government stands to gain $2.9 billion in tax revenue

The Liberal government is mulling over the possibility of lifting tax exemptions on employer-sponsored health and dental plans, a move that sources say would open $2.9 billion in new revenue, according to a report by the Calgary Herald.

Most employee benefits, such as life insurance or company-provided cars, are taxed. However, outside Quebec, as many as 13.5 million Canadians enjoy tax-free health and dental coverage from their employers.

Proponents of the move to eliminate exemptions on employee coverage argue that all remuneration should be treated equally. Furthermore, they say that under the current system, those with lower incomes and without private health plans are effectively subsidizing those who get private health coverage from their employers.

On the other hand, imposing a tax on health coverage is likely to discourage employers from providing it. After Quebec allowed taxation on employee health benefits in the early 2000s, the coverage offered to employees was scaled back. Considering the number of Canadians that enjoy such benefits, any fiscal initiative that would affect them would likely be controversial.

The Department of Finance has tapped seven external experts to conduct a review to ensure that the federal tax system is as fair, efficient, and simple as possible. The review covers 150 tax credits that are worth an estimated $100 billion a year in foregone federal revenue; the current Report on Federal Tax Expenditures estimates that dental and health benefits account for $2.9 billion. While the academics included those credits in their review, it is not clear what they recommended.

Dan Lauzon, a spokesperson for Federal Finance Minister Bill Morneau, said that no decisions have been made, and no moves would be done in isolation. He added that the review is not being seen as an exercise in revenue generation.

Addressing the Senate finance committee, Morneau said that changes are coming for the federal tax system. In the 2016 budget, tax credits for children’s fitness and children’s arts have been removed.
“We think we did make some simplifying efforts in budget 2016, but we know there’s more work to be done in this regard to look at things that no longer have the desired impact,” he said. “It’s an effort that we’re pursuing.”

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