Did you know that the Federal Government of Canada has recently proposed to eliminate tax deductions for having an employer-subsidized health and dental insurance plan?
If you are among the millions of Canadians, who enjoy virtually tax-free health and dental insurance provided by your workplace or you have an individual health coverage as well as if you do not have any private insurance at all, you might want to know what it would mean for you, if the initiative is accepted.
At the end of 2016, the Liberal Government of Canada has proposed to include the expenses for workplace private health and dental insurance plans as a taxable entity that would dramatically increase federal tax revenue by almost 3 billion dollars according to numerous sources. More specifically, such initiative would affect workplace healthcare plans by potentially discouraging employers as well as eligible employees to pay for extended health and dental benefits due to an elevated cost of being insured.
Given the magnitude of the situation, more than 13 million of Canadian residents using private health care provided by their employers would need to pay significantly larger amounts of taxes, which does not seem to be especially beneficial for the public image of the current Federal Government.
However, there are two sides of this coin. The main political argument behind taxation of private insurance plans is the uneven tax treatment of those Canadians who are insured at their workplace and those, who buy individual health and dental insurance plans with after-tax money. As a result, a substantial number of people pay for the medical services uninsured by their provincial insurance plan out-of-pocket, because of the relative unaffordability of individual private health care plans.
The “tax-swap” initiative was proposed as the solution for the imbalanced treatment of lower-income households who do not have an insurance policy or pay for it with after-tax dollars. In a nutshell, the Government aims at defraying the costs for purchasing an individual health insurance plan with a refundable tax credit sponsored by the revenue generated from taxing workplace insurance plans.
If we take a look at the proposed numbers, Canadian residents with an individual annual income of less than $44,000 would receive a $750 credit to assist with purchasing a private insurance policy, while families that earn less than $89,000 are promised a $1,500 tax credit.
So, will the Federal Government of Canada tax workplace private insurance? No one really knows at this point. While it looks like a sound plan to bridge the gap in uneven distribution of private health insurance coverage, there is a big “If”.
In case, the government imposes the tax for workplace insurance, they might choose not to provide a refundable tax credit for less affluent Canadians. Simply put, certain employers may opt out of providing health and dental insurance to their employees and the employees may decide not to buy an individual insurance policy for it being too expensive to afford.
Overall, it all boils down to a single government choice of leaving the private sector of healthcare alone or replacing the current tax treatment of private health insurance coverage, or increasing tax revenues from employee-sponsored insurance and use it to reduce the federal budget deficits.
As the story unfolds, it is still not clear whether or not tax deductions from having a private insurance plan at your workplace will end at some point.
Nevertheless, having comprehensive health and dental insurance policy remains an important factor in securing your financial stability. At Arbetov Insurance, we are happy to assist you with exploring various insurance options suitable for you as an individual or as a small business looking to cover your employees.
To learn more about your options, just contact our Insurance Advisors.