Taxing health and dental plans may cost Canadians at least $1,000 more per year

by Leo Almazora01 Feb 2017
The question of whether to tax health and dental plans has been debated based on notions of fairness and tax efficiency. However, a new study presents numbers that could put the discussion on firmer ground.

New research conducted by the Conference Board of Canada suggests that taxing health and dental plans held by 13.5 million working Canadians would cost middle-income earners a minimum of $1,000 in additional federal and provincial income tax, according to the National Post.

The study, which will soon be released, was conducted for the Canadian Dental Association (CDA). According to the group, 50,000 emails have already been sent to local MPs and Finance Minister Bill Morneau via website for its “Don’t Tax My Health Benefits” campaign.

Results of the research suggest that a full-time employee earning $45,000 in Ontario, with coverage, would have to pay an additional $1,167 in tax. Ontarians earning $60,000 would pay $1,043 more, and those getting $90,000 would face an additional tax of $1,277. The amounts are fairly even across Canada, except in Quebec, where an income of $90,000 would correspond to an additional $1,729 in combined taxes. The amounts would be double for families that have two wage-earners with coverage.

Some proponents of the measure point out that extra costs could be defrayed with an existing medical expense tax credit (METC), a scheme under which taxes on benefits could be reimbursed. While the Conference Board acknowledges that the METC could cancel out the added tax burden for those earning less than $45,000, only 17% of Canadians actually claim it. In addition, it wouldn’t totally offset the tax for those earning above $45,000.

Another solution, proposed in 2015 by a panel chaired by University of Toronto President David Naylor, is to end the current system of employee benefits and introduce a tax swap. Under that arrangement, the government would institute a refundable tax credit to help all Canadians purchase private insurance. However, providing decent coverage levels using this solution would impose an additional cost of $1 billion, according to the Naylor report.

Critics of the measure have also cited the case in Quebec, where taxation of employee health benefits in the early 2000s resulted in a pullback in coverage offered to employees. Other policy experts have been cautiously supportive, saying that the proposal has merit as long as the government uses the added tax revenue to fund worthwhile services.

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