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Changing Tax Status Hurts Canadians

Amending the federal Income Tax Act to end the tax-free status of employer-provided group health and dental benefit plans, replacing it with a system of refundable tax credits for individuals would have serious negative consequences for Canadians, Canadian businesses, and Canada as a whole, says Mercer Canada. If implemented, the added costs to the public healthcare system would greatly exceed any additional tax revenue generated as employer-sponsored private group health and wellness benefits help fill crucial gaps in the public health system – including preventive care, prescription drug coverage, and mental health services – for more than 22 million Canadians. Private group coverage offers significant cost savings and access advantages over individual insurance where high costs, medical underwriting, pre-existing condition limitations, and benefit maximums are significant barriers to coverage, particularly for those in greatest need, it says. Ending the tax exemption of employer contributions also will effectively reduce employee after-tax compensation, which would cause significant disruptions in labour relations and collective bargaining, resulting in substantial additional costs to Canadian businesses, including an estimated $1 billion increase in CPP and EI contributions. Employers would also be subject to added legal risk, especially with respect to the devaluation of vest post-retirement benefits accrued over the working career of retired members. With half of employees covered by an existing employer-provided benefits plan earning $40,000 a year or less, ending the tax exemption for employer contributions is therefore expected to have the biggest impact on the middle class, the working poor, and seniors on fixed incomes and could even negatively affect the eligibility of some seniors for income-tested government programs such as the Guaranteed Income Supplement.

Courtesy of Benefits and Pensions Monitor website News Alerts 


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