Sickness and Accident Planning

Transcription

1 Sickness and Accident Planning Gregory Sanders April 16, 2013 STEP Corporation 1

2 Some General Observations -Disability and critical illness insurance are the two least used insurance products -Secondary sources of income vary if stricken by an illness, including, government, savings, spousal income - Rising costs of health insurance - employee benefits can be critical to employee retention Corporation 2

3 The Basics of Disability Illness -periodic payouts as a result of a illness -Waiting period may apply -No restrictions on use of funds by recipient restrictions on coverage Medical check up annual premium can vary Corporation 3

4 Benefits available Critical illness Accident and sickness Medical expenses, drug, private rooms Corporation 4

5 Income Tax Applications GSAIP ss6(1)(a)(i), (e.1), (f) Employee Life and Health Trust s.144.1, s.20(1)(s) Private Health Services Plan s Corporation 5

6 GSAIP -Income Tax Act has comprehensive rules for life insurance but not accident and sickness -Critical illness considered sickness and accident and not life insurance -Premiums paid by an employer for a group sickness and accident plan for employees are not taxable benefits unless ss6(1)(e.1) applies (ss6(1)(a)) -Premiums paid shuld be deductible by employer if incurred for the purpose of earning income from business or property( s 9) - Periodic benefits received are taxable to employee (ss6(1)(f)) Corporation 6

7 GSAIP Insurance Company vs Self Insurance HWT vs GSAIP Limits on amount for contribution Affect of ELHT rules Labow decision Corporation 7

8 ELHT Do not supersede HWT practices Can provide designated benefits such as disability, term life and medical Beneficiaries can include employees, spouses children and retirees Restrictions for key employees who own at least 10% or whose earnings are more than 5 times the CPP earnings max 75% of the members must not be key employees Maximum deduction limited to insurance company premiums or amount payable for benefits in the year Benefits received are taxable/non taxable depending on nature of benefit received (ie medical reimbursement vs disability payment) Corporation 8

9 PHSP Used for self employed individuals Contract of insurance for hospital, medical expenses Cost plus plans are common in a private company employer-employee setting Does not include income maintenance or disability Deduction limited to $1,500 for each covered adult and $750 for each dependent Benefits received are tax free Corporation 9

10 Summary of Tax Issues Are employer contributions to fund a group sickness and accident plan for the benefit of employees deductible? If the contributions are a bona fide legal obligation of the employer payable under a bona fide policy of insurance, CRA generally views these payments as deductible provided that the benefit is provided to employees in their capacity as employees and in consideration of their services as such, and not in some other capacity (see Spicy Sports and labow cases)). Corporation 10

11 Tax Issues Is a self-funded Group Sickness and Accident Insurance Plan ( GSAIP ) considered insurance? CRA s view is that a self-funded GSAIP is insurance if it has the attributes of insurance, which include such things as risk and unknown benefit timing. Often referred to as an HWT (IT85R2) Corporation 11

12 Tax Issues Can employees who are also shareholders participate in a GSAIP or ELHT? CRA has stated that employees who are also shareholders can participate in a plan if it can be demonstrated that they are treated the same way as all other employees in a similar class (i.e. the executive of the company or the officers and directors). Greater restrictions for ELHT plans Corporation 12

13 Tax Issues Are contributions to a plan a taxable benefit to the employees at the time of contribution? group sickness and accident insurance plan ( GSAIP ) is set out in subparagraph6(1)(a)(i) of the Income Tax Act (the ITA ) as a non taxable benefit. ss(6(1)(e.1) received royal assent in 2012 and requires plan to make periodic payments to employees and not lump sum payments Corporation 13

14 Tax Issues Are benefits received from employer funded plan taxable at the time of receipt? Subparagraph 6(1)(f) of the ITA states that periodic payments from an employer funded GSAIP are taxable when received by an employee. EHT would apply when benefit considered remuneration under s. 5 or s. 6 of ITA (ie when received). Corporation 14

15 Tax Issues Are contributions to a Plan subject to Ontario retail sales tax ( RST ) or goods and services tax ( GST )? Contributions to a plan should not be subject to RST if each employee has a separate contract for coverage. There is no GST on employee benefits paid by a company. Corporation 15

16 Tax Issues Are contributions to or payments from a C.I. Plan subject to Ontario Corporate Benefits tax (CTA 74.2)? No case law on application of this section. Conversion to single administration in Ontario. Possible application on payment of Benefit. Corporation 16

17 Corporation 17

18 Recent ITA changes 2013 budget restricts qualifing GSAIP s to require periodic payments (catches CI planning) Corporation 18

19 Other plans PHSP Corporation 19