Incidences de l imposition des régimes d assurance-maladie payés par l employeur.

Incidences de l imposition des régimes d assurance-maladie payés par l employeur. Aperçu La non-imposition des régimes d assurance-maladie et de soins dentaires payés par l employeur fait perdre environ 2,7 G$ en recettes fiscales au gouvernement fédéral. Le montant des cotisations moyennes annuelles pour les employés à temps plein est de 1 462 $ pour une couverture individuelle et de 3 521 $ pour une couverture familiale, ce qui crée une charge financière supplémentaire allant de 402 $ pour une personne qui a une couverture individuelle et qui gagne 45 000 $ à 1 497 $ pour une personne ayant une couverture familiale et gagnant 90 000 $. Cette charge varie en fonction du revenu et de la province de résidence. Le crédit d impôt pour frais médicaux peut entièrement compenser la charge financière supplémentaire pour les personnes gagnant moins de 45 000 $, pour peu que celles-ci demandent à en bénéficier. Les personnes qui ne demandent pas ce crédit et qui se trouvent dans la tranche de revenu la plus basse sont celles qui supportent la plus forte charge financière supplémentaire en pourcentage du revenu. Une version anglaise exhaustive de cette publication suit ce résumé en français. RÉSUMÉ FÉVRIER 2017

Incidences de l imposition des régimes d assurance-maladie payés par l employeur De nombreux Canadiens bénéficient actuellement d une assurance étendue en matière de soins de santé et de soins dentaires au titre des avantages non imposables fournis par leur employeur. Le gouvernement fédéral a récemment annoncé un examen de ses dépenses fiscales. Il envisage, entre autres mesures, de soumettre les avantages au titre des régimes d assurance-maladie et de soins dentaires payés par l employeur à l impôt sur le revenu, étant donné que leur non-imposition lui fait perdre quelque 2,7 G$ en recettes fiscales. D après nos estimations, pour un employé à temps plein, le montant des cotisations à un régime d assurance-maladie et de soins dentaires payé par l employeur est de 1 462 $ pour une couverture individuelle et de 3 521 $ pour une couverture familiale. L assujettissement de ces cotisations à l impôt sur le revenu ferait augmenter le montant de l impôt fédéral et provincial ainsi que celui des cotisations au Régime de pensions du Canada pour les personnes dont le revenu est inférieur au maximum des gains annuels ouvrant droit à pension. Ainsi, selon la province de résidence, une personne qui gagne 45 000 $ par an et qui a une couverture individuelle supporterait une charge financière annuelle supplémentaire comprise entre 400 et 600 $, tandis qu une personne gagnant 45 000 $ par an et ayant une couverture familiale supporterait une charge financière annuelle supplémentaire comprise entre 1 100 et 1 360 $. Fait intéressant, une personne gagnant 45 000 $ supporterait une charge financière supplémentaire plus grande qu une personne gagnant 65 000 $, indépendamment du type de couverture (individuelle ou familiale) et de la province de résidence. Cela s explique par le fait que la personne gagnant 45 000 $ serait soumise à une hausse de ses cotisations au Régime de pensions du Canada, tandis que celle gagnant 65 000 $ contribue déjà au maximum des gains admissibles. Consultez les recherches du Conference Board à www.e-library.ca. 2

Le Conference Board du Canada. Tous droits réservés. Veuillez communiquer avec cboc.ca/ip si vous avez des questions au sujet de l'utilisation de ce document. Le Conference Board du Canada Une assurance collective proposée par un employeur offre des avantages par rapport à une assurance privée contractée individuellement. Si les avantages payés par les employeurs étaient assujettis à l impôt sur le revenu, le montant des cotisations serait admissible au crédit d impôt pour frais médicaux. Toutefois, moins de 17 % des Canadiens ont demandé ce crédit en 2013, et moins de la moitié de ceux qui l ont demandé ont indiqué l emploi comme principale source de revenus (laissant supposer qu ils étaient employés et recevaient peut-être des avantages au titre d un régime d assurance-maladie et de soins dentaires payé par l employeur). Cette note de recherche calcule la charge financière supplémentaire en partant du principe que les personnes intéressées ont pleinement recours au crédit d impôt pour frais médicaux. Cependant, il faut souligner que ce scénario ne concernera probablement pas la majorité des contribuables canadiens. Par ailleurs, une assurance collective proposée par un employeur offre des avantages par rapport à une assurance privée contractée individuellement. En effet, les employeurs peuvent partager les risques entre les groupes d employés et ils peuvent donc négocier pour faire baisser les frais accessoires par personne ainsi que les frais administratifs. L augmentation de la charge financière sur les régimes d assurance-maladie et de soins dentaires pourrait pousser les employés en bonne santé à se passer d une couverture supplémentaire, réduisant de ce fait le partage des risques et augmentant le montant des cotisations. Enfin, la couverture supplémentaire des soins médicaux et dentaires payée par l employeur améliore l accès aux services de santé non couverts par les régimes provinciaux d assurance-maladie. Ce meilleur accès encourage les Canadiens à utiliser des services comme les soins dentaires, les médicaments sur ordonnance, les soins de la vue, l orthophonie, l audiologie et la nutrition, ce qui contribue à la bonne santé et au bien-être de la population. Dites-nous ce que vous en pensez évaluez cette publication. www.conferenceboard.ca/e-library/abstract.aspx?did=8617 Consultez les recherches du Conference Board à www.e-library.ca. 3

Le Conference Board du Canada. Tous droits réservés. Veuillez communiquer avec cboc.ca/ip si vous avez des questions au sujet de l'utilisation de ce document. The Implications of Taxing Employer-Paid Health and Dental Benefits. At a Glance Non-taxation of benefits from employer-paid health and dental plans cost the federal government an estimated $2.7 billion in forgone revenue. Average annual premiums for full-time employees are $1,462 for single coverage and $3,521 for family coverage, which creates an additional financial burden ranging from $402 for someone with single coverage earning $45,000 to $1,497 for someone with family coverage earning $90,000. The additional financial burden varies depending on income and province of residence. The medical expense tax credit can completely offset the additional federal tax burden for those earning under $45,000 if claimed. If not claimed, those in the lowest income bracket would incur the greatest additional tax burden as a percentage of income. BRIEFING FEBRUARY 2017

The Implications of Taxing Employer-Paid Health and Dental Benefits Executive Summary Many Canadians currently receive extended health and dental coverage as a non-taxable benefit from their employer. The federal government has recently announced a review of tax expenditures, and one of the measures examined is making employer-paid health and dental benefits subject to income tax, which is valued at $2.7 billion in forgone federal revenue. This briefing estimates the value of employer-paid health and dental benefits at $1,462 for single coverage and $3,521 for family coverage for full-time employees. Subjecting the value of premiums to income tax results in more federal and provincial tax owed, as well as higher Canada Pension Plan (CPP) payments for those earning below the yearly maximum pensionable earnings. Someone earning $45,000 annually with single coverage would face an additional financial burden of approximately $400 to $600 annually, depending on province of residence. Someone earning $45,000 but with family coverage would face an additional financial burden of approximately $1,100 to $1,360, again depending on province of residence. Interestingly, those earning $45,000 would face a higher additional financial burden than those earning $65,000, regardless of single or family coverage and province of residence. This is because those earning $45,000 would have additional CPP contributions, while those earning $65,000 would have already contributed the maximum yearly pensionable earnings. If employer-paid benefits were subject to income tax, the value of premiums would be eligible for the Medical Expense Tax Credit (METC). However, less than 17 per cent of Canadians claimed this credit in 2013, and less than half of those who claimed it listed employment as their main source of income (thus assuming they were employed and possibly receiving employer-paid health and dental benefits). This briefing 6

Le Conference Board du Canada. Tous droits réservés. Veuillez communiquer avec cboc.ca/ip si vous avez des questions au sujet de l'utilisation de ce document. The Conference Board of Canada Employer-paid health and dental benefits are important to promote employee health and wellness. presents the additional financial burden while assuming full use of the metc, but it must be stressed this will likely not be the scenario for most Canadian taxpayers. In addition, group insurance offered by employers has advantages over individually obtained private insurance. since employers are able to pool risk across groups of employees, they are able to negotiate lower policy costs per person and also have lower administrative costs. Increasing the financial burden associated with health and dental coverage could make healthier employees forgo supplemental coverage, resulting in less risk-pooling and higher premiums. Finally, employer-paid supplemental health and dental coverage increases access to health services not covered under provincial health insurance plans. this increased access encourages Canadians to use services such as dental care, prescription drugs, vision care, speech and audiology services, and nutrition counselling, which in turn promotes population health and wellness. Introduction many Canadians receive supplemental health and dental coverage from their employer as a non-taxable benefit. the federal government is currently conducting a review of tax expenditures, and one of the measures it is examining is taxing employer-paid health and dental benefits, which is valued at $2.7 billion in forgone federal revenue. however, concerns have been raised regarding the financial burden to the Canadian taxpayer, as well as the potential to decrease access to health care services and the associated impact on population health. overall, employer-paid health and dental benefits are important to promote employee health and wellness. But the non-taxation of these benefits leads to some people bearing a greater relative tax burden, such as self-employed workers and people without benefits. In the case of self-employed workers, they are able to claim a deduction on their business income for the cost of private health and dental plans. For people without benefits, they have the option to purchase private insurance using their after-tax income (and claim the value of the 7

The Implications of Taxing Employer-Paid Health and Dental Benefits premiums using the Medical Expense Tax Credit [METC]). Because selfemployed workers and people without benefits shoulder a greater relative tax burden, they are subsidizing those who have employer-paid health and dental benefits, an argument supporting the taxation of employerpaid health and dental benefits. The purpose of this briefing is to examine and estimate the value of employer-paid health and dental benefits in Canada and the implications of making these subject to income tax for various categories of tax filers. This will be achieved by estimating the additional tax burden on employees who receive supplemental health and dental benefits from their employer. The briefing will also consider additional implications of making employer-paid benefits taxable, such as the decrease in supplemental health and dental coverage. Supplemental coverage makes employees more likely to access services not covered by provincial health plans, such as prescription drugs and dental care. This extended coverage promotes employee health and wellness, making benefits packages a valuable part of employee remuneration. A case study of the Quebec government eliminating the provincial tax subsidy for employer-paid health and dental benefits is used to estimate the decreased impact on access to health services. Research Methodology Data Sources This briefing draws from publicly available information from the Department of Finance and the Canada Revenue Agency (CRA). The Department of Finance Report on Federal Tax Expenditures 2016 1 provides background information on the non-taxation of health and dental benefits and the forgone revenue to federal government. Federal income tax brackets as well as data on historical tax returns filed were obtained from CRA. 1 Department of Finance Canada, Report on Federal Tax Expenditures. 8

Le Conference Board du Canada. Tous droits réservés. Veuillez communiquer avec cboc.ca/ip si vous avez des questions au sujet de l'utilisation de ce document. Extended coverage promotes employee health and wellness, making benefits packages a valuable part of employee remuneration. The value of employer-paid health and dental benefits was estimated using The Conference Board of Canada s Benefits Benchmarking 2015 2 report. Analysis The average additional federal tax burden to both full- and part-time employees, for both single and family coverage, and for both health and dental plans, is calculated by multiplying the average value of employerpaid extended health care and dental benefits by the respective marginal tax rate in each federal income bracket. The average additional provincial/territorial tax burden is also calculated by multiplying the value of employer-paid extended health care and dental benefits by the respective marginal tax rate in each provincial/territorial income bracket. Additional Canada Pension Plan (CPP) contributions resulting from an increase in taxable income are calculated by multiplying the value of employer-paid benefits by the CPP contribution rate of 4.95 per cent. CPP contributions can be claimed as a non-refundable tax credit on federal and provincial income tax returns, which is taken into account by applying the 15 per cent federal non-refundable tax credit rate as well as each respective provincial non-refundable tax credit rate to the value of the contributions. Since employer-paid benefits are already subject to income tax in Quebec, the figures reported in this briefing are the existing tax burden in that province. Additionally, the numbers for Quebec represent Quebec Pension Plan (QPP) contributions, which has an employee contribution rate of 5.325 per cent, and there is no provincial tax credit for QPP contributions. The additional tax burden with full use of the METC is calculated by applying the federal and provincial non-refundable tax credit rate to the value of employer-paid health and dental benefits. The financial burden reported with the METC assumes full use of the tax credit (i.e., the tax filer has already met the medical expenditure threshold to qualify for the METC and the full amount of employer-paid premiums is discounted). 2 The Conference Board of Canada, Benefits Benchmarking 2015. 9

The Implications of Taxing Employer-Paid Health and Dental Benefits Data Limitations The Conference Board s Benefits Benchmarking 2015 3 report is used to estimate the average annual premiums for full-time and part-time employees. The survey used as a basis for the report was originally designed for mid- to large-sized employers to benchmark themselves against other similar organizations, and is not a comprehensive survey of health and dental benefits offered across Canada. The sample size comprises medium to large companies with comprehensive health and dental plans, which skew the estimates in two ways. First, larger organizations offering group plans to thousands of employees are able to negotiate lower premiums with insurance companies than smaller organizations. Second, given the companies in the sample, the plans represented tend to be better than the average plan across Canada, and thus costlier. Results Forgone Revenues Employer-paid benefits for extended health care and dental plans are not a taxable employee benefit and are deductible business expenses for employers. In addition, self-employed people are able to claim a deduction on their business income for the cost of private health care and dental plans. 4 Department of Finance Canada estimated that the non-taxation of employer-paid extended health care and dental plans resulted in approximately $2.7 billion in forgone revenue to the federal government in 2016. (See Table 1.) Table 1 Federal Revenue Forgone From Non-Taxation of Benefits From Private Health and Dental Plans ($ millions) 2012 2013 2014 2015 2016 2017 Revenue forgone 2,420 2,520 2,590 2,730 2,735 2,890 Source: Department of Finance Canada. 3 Ibid. 4 Department of Finance Canada, Report on Federal Tax Expenditures. 10

Le Conference Board du Canada. Tous droits réservés. Veuillez communiquer avec cboc.ca/ip si vous avez des questions au sujet de l'utilisation de ce document. is significantly more expensive for extended health care plans and for dental plans. Value of Employer-Paid Benefits The value of annual premiums for employer-provided health and dental benefits can vary based on a number of factors. First, annual premiums are significantly higher for family coverage than for single coverage. Second, more comprehensive plans tend to have higher premiums, and there is a wide range of health and dental plans offered among Canadian employers. Third, larger employers are better able to negotiate annual premiums with insurance companies and to take advantage of economies of scale in pooling risk across employees, driving down the cost of their premiums. As a result, the estimates of the additional tax burden also vary, and are dependent on the income of the individual and the degree of coverage. Fully Insured and Self-Insured Group Benefit Plans Under fully insured benefit plans, the employer pays a regular premium to an insurer, which then pays out all claims and assumes financial risks for those claims. Under self-insured benefit plans, the employer is financially responsible for paying all claims. The premiums of fully insured plans and any reimbursements paid under self-insured benefit plans are excluded from an employee s taxable income. 5 Value of Annual Premiums The average annual premium for single coverage (coverage of the employee and no spouse or dependents) for full-time employees is $882 for extended health care plans and $580 for dental plans. (coverage of the employee, spouse, and a number of dependents) is significantly more expensive, at $2,102 annually for extended health care plans and $1,419 annually for dental plans. (See Table 2.) 5 Canada Revenue Agency, Income Tax Folio. 11

The Implications of Taxing Employer-Paid Health and Dental Benefits Table 2 Average Annual Premiums for Full-Time Employees Extended health care 882 2,102 Dental 580 1,419 Total 1,462 3,521 Source: The Conference Board of Canada. The average annual premiums for part-time employees are slightly lower than for full-time employees (for both single and family coverage). Single coverage for part-time employees is estimated to cost $826 annually for extended health care plans and $515 for dental plans. for part-time employees costs $2,074 annually for extended health care plans and $1,333 annually for dental plans. (See Table 3.) Table 3 Average Annual Premiums for Part-Time Employees Extended health care 826 2,074 Dental 515 1,333 Total 1,341 3,407 Source: The Conference Board of Canada. Federal Income Tax Burden Federal Income Tax Rates Making employer-paid extended health care and dental benefits subject to income tax shifts the value of the premiums from a workers non-taxable income to taxable income. The amount of additional income tax borne by the taxpayer depends on the level of income and applicable marginal tax rates. For instance, while lower-income people face lower marginal tax rates, the rates increase with income. Indeed, the federal tax rates range from 15 per cent on the first $45,282 of income earned to 33 per cent on any income earned over the $200,000 threshold. (See Table 4.) 12

Le Conference Board du Canada. Tous droits réservés. Veuillez communiquer avec cboc.ca/ip si vous avez des questions au sujet de l'utilisation de ce document. Table 4 Federal Tax Rates, 2016 (per cent) Taxable income Marginal tax rate First $45,282 15.0 Over $45,282 up to $90,563 20.5 Over $90,563 up to $140,388 26.0 Over $140,388 up to $200,000 29.0 Over $200,000 33.0 Source: Canada Revenue Agency. Chart 1 Distribution of Tax Returns Filed, by Income (per cent) 20 15 10 5 0 0 9,999 10,000 19,999 20,000 29,999 30,000 39,999 40,000 49,999 50,000 59,999 60,000 69,999 70,000 79,999 80,000 89,999 90,000 99,999 100,000 149,999 150,000 249,999 250,000+ Source: The Conference Board of Canada. Chart 1 shows the distribution of tax returns filed by income for the 2013 tax year (most recent year for which data are available from CRA). About 69.5 per cent of tax returns filed were from people earning less than $50,000, 20.2 per cent were from those earning $50,000 to $89,999, 7.5 per cent were from those earning $90,000 to $149,999, and 2.9 per cent were from those earning over $150,000. Taxing Employer-Paid Benefits Making employer-paid premiums to health and dental plans subject to income tax shifts the value of premiums from an employee s non-taxable income to taxable income. The additional federal tax burden depends 13

The Implications of Taxing Employer-Paid Health and Dental Benefits on an employee s income level and is summarized in tables 5 and 6 for full- and part-time employees, separated by level of coverage (single or family) and by type of insurance (health or dental), respectively. The average additional federal tax burden for full-time employees with single coverage ranges from $132.30 per year in the $45,282 or less income bracket to $291.06 per year in the $200,000 and over income bracket for health coverage. For dental coverage, the additional federal tax burden goes from $87 per year in the $45,282 or less income bracket to $191.40 per year in the $200,000 and over income bracket. For family coverage, the additional federal tax burden ranges from $315.30 per year in the lowest-income bracket to $693.06 per year in the highest-income bracket for health coverage and from $212.85 per year in the lowestincome bracket to $468.27 per year in the highest-income bracket for dental coverage. (See Table 5.) Table 5 Average Additional Federal Tax Burden to Full-Time Employees, by Single and Family Coverage Income bracket Health Dental Health Dental 45,282 or less 132.30 87.00 315.30 212.85 45,283 to 90,563 180.81 118.90 430.91 290.90 90,564 to 140,388 229.32 150.80 546.52 368.94 140,389 to 200,000 255.78 168.20 609.58 411.51 Over 200,000 291.06 191.40 693.66 468.27 Sources: The Conference Board of Canada; Canada Revenue Agency. For part-time employees with single coverage, the average additional federal tax burden ranges from $123.90 per year in the $45,282 or less income bracket to $272.58 per year in the $200,000 and over income bracket for health coverage and from $77 per year in the lowest-income bracket to $169.95 per year in the highest-income bracket for dental 14

Le Conference Board du Canada. Tous droits réservés. Veuillez communiquer avec cboc.ca/ip si vous avez des questions au sujet de l'utilisation de ce document. coverage. For family plans, the additional federal tax burden ranges from $311.10 per year in the lowest-income bracket to $684.42 per year in the highest-income bracket for health coverage and from $199.95 per year in the lowest-income bracket to $439.89 per year in the highest-income bracket for dental coverage. (See Table 6.) Table 6 Average Additional Federal Tax Burden to Part-Time Employees, by Single and Family Coverage Income bracket Health Dental Health Dental 45,282 or less 123.90 77.00 311.10 199.95 45,283 to 90,563 169.33 105.58 425.17 273.27 90,564 to 140,388 214.76 133.90 539.24 346.58 140,389 to 200,000 239.54 149.35 601.46 386.57 Over 200,000 272.58 169.95 684.42 439.89 Sources: The Conference Board of Canada; Canada Revenue Agency. Federal Tax Burden To estimate the additional federal tax burden at varying levels of income, a hypothetical scenario was created for people earning $45,000, $65,000, and $90,000 annually. At these income levels, the federal tax burden is slightly higher for full-time employees for both single and family coverages. For single coverage, the additional tax burden ranges from $284.20 for someone earning $45,000 annually to $349.16 for someone earning $90,000 annually for full-time employees, and from $259.40 to $317.70, respectively, for part-time employees. For family coverage, the additional tax burden ranges from $706.30 for someone earning $45,000 to $884.50 for someone earning $90,000 for fulltime employees, with these amounts being slightly lower for part-time employees with family coverage. (See Table 7.) 15

The Implications of Taxing Employer-Paid Health and Dental Benefits For family coverage, the additional federal tax burden ranges from $706 for someone earning $45,000 to $884 for someone earning $90,000. Table 7 Annual Additional Federal Tax Burden, by Single and Family Coverage and Full- and Part-Time Employees Income Full time Part time Full time Part time 45,000 284.20 259 706 683 65,000 299.71 275 722 698 90,000 349.16 318 885 855 Source: The Conference Board of Canada. While the additional federal tax burden increases steadily with income, making employer-paid benefits subject to income tax may disproportionally affect those earning just below the top of each respective income tax bracket. For instance, a person working full-time and earning $45,000 annually has a marginal tax rate of 15 per cent. Adding in the value of employer-paid benefits results in that person s income surpassing the lowest federal income tax bracket of $45,282. If this person has family coverage, it means an additional $3,521 on taxable income. Exactly $282 of that value is taxed at the 15 per cent rate, while the remaining $3,239 is taxed at the next incremental marginal tax rate of 20.5 per cent, leading to $706.30 of additional tax paid. Contrast this with an additional burden of $528.15. if the person s income was slightly lower and taxing benefits did not place him or her in the next incremental tax bracket. (See Table 7 and Appendix A, Table 1.) Detailed results for the additional federal tax burden for each tax bracket for single and family coverage and for full- and part-time employees are available in Appendix A. Provincial Income Tax Burden Provincial and Territorial Income Tax Rates As with federal income tax rates, the marginal provincial income tax rates increase with income. However, there is significant variation in marginal tax rates across the provinces and territories. For example, tax rates vary from 4 per cent on the first $43,176 of taxable income in Nunavut to 25.75 per cent on income above $103,150 in Quebec. (See Table 8.) 16

Le Conference Board du Canada. Tous droits réservés. Veuillez communiquer avec cboc.ca/ip si vous avez des questions au sujet de l'utilisation de ce document. Table 8 Provincial/Territorial Tax Rates, 2016 Province/territory Marginal tax rates Newfoundland and Labrador 8.2% on first 35,418 of taxable income + 13.5% on 35,149 to 70,295 + 14.55 on 70,296 to 125,500 + 15.8 on 125,501 to 175,700 + 16.8 on income above 175,700 Prince Edward Island 9.8% on first 31,984 of taxable income + 13.8% on 31,985 to 63,969 + 16.7% on income above 63,969 Nova Scotia 8.79% on first 29,590 of taxable income + 14.95% on 29,591 to 59,180 + 16.67% on 59,181 to 93,000 + 17.5% on 93,001 to 150,000 + 21% on income above 150,000 New Brunswick 9.68% on first 40,492 of taxable income + 14.82% on 40,493 to 80,985 + 16.52% on 80,986 to 131,664 + 17.84% on 131,665 to 150,000 + 20.3% on income above 150,000 Quebec 16% on first 42,390 of taxable income + 20% on 42,391 to 84,780 + 24% on 84,781 to 103,150 + 25.75% on income above 103,150 Ontario 5.05% on first 41,536 of taxable income + 9.15% on 41,537 to 83,075 + 11.16% on 83,076 to 150,000 + 12.16% on 150,001 to 220,000 + 13.16% on income above 220,000 Manitoba 10.8% on first 31,000 of taxable income + 12.75% on 31,001 to 67,000 + 17.4% on income over 67,000 Saskatchewan 11% on first 44,601 of taxable income + 13% on 44,602 to 127,430 + 15% on income over 127,430 Alberta 10% on first 125,000 of taxable income + 12% on 125,001 to 150,000 + 13% on 150,001 to 200,000 + 14% on 200,001 to 300,000 + 15% on income over 300,000 British Columbia 5.06% on first 38,210 of taxable income + 7.7% on 38,211 to 76,241 + 10.5% on 76,242 to 87,741 + 12.29% on 87,742 to 106,543 + 14.7% on income over 106,543 Yukon Territory 6.4% on first 45,282 of taxable income + 8.6% on 45,283 to 90,563 + 10.9% on 90,564 to 140,388 + 12.8% on 140,389 to 500,000 + 15% on income over 500,000 Northwest Territories 5.9% on first 41,011 of taxable income 8.6% on 41,012 to 82,024 + 12.2% on 82,025 to 133,353 + 14.05% on income over 133,353 Nunavut 4% on first 43,176 of taxable income + 7% on 43,177 to 86,351 + 9% on 86,352 to 140,388 + 11.5% on income over 140,388 Source: Canada Revenue Agency. 17

The Implications of Taxing Employer-Paid Health and Dental Benefits Provincial Tax Burden Similar to the federal tax burden, a hypothetical scenario is created that estimates the additional provincial tax burden incurred from making employer-paid health and dental benefits subject to income tax for annual incomes of $45,000, $65,000, and $90,000. (See Table 9.) As expected, the provincial tax burden is slightly higher for full-time employees with either single or family coverage. (See Appendix D, Table 1). Table 9 Annual Additional Provincial Tax Burden for Full-Time Employees, by Single and Family Coverage Province Income Full-time Full-time Newfoundland and Labrador 45,000 197.37 475.34 65,000 197.37 475.34 90,000 212.72 512.31 Prince Edward Island 45,000 201.76 485.90 65,000 244.15 588.01 90,000 244.15 588.01 Nova Scotia 45,000 218.57 526.39 65,000 243.72 586.95 90,000 243.72 591.28 New Brunswick 45,000 216.67 521.81 65,000 216.67 521.81 90,000 241.52 581.67 Quebec 45,000 292.40 704.20 65,000 292.40 704.20 90,000 350.88 845.04 Ontario 45,000 133.77 322.17 65,000 133.77 322.17 90,000 163.16 392.94 Manitoba 45,000 186.41 448.93 65,000 254.39 519.65 90,000 254.39 612.65 Saskatchewan 45,000 197.37 475.34 65,000 197.37 475.34 90,000 212.72 512.31 Alberta 45,000 146.20 352.10 65,000 146.20 352.10 90,000 146.20 352.10 British Columbia 45,000 112.57 271.12 65,000 112.57 271.12 90,000 179.68 432.73 Yukon Territory 45,000 119.53 296.60 65,000 125.73 302.81 90,000 146.39 370.82 Northwest Territories 45,000 125.73 302.81 (continued...) 18

Le Conference Board du Canada. Tous droits réservés. Veuillez communiquer avec cboc.ca/ip si vous avez des questions au sujet de l'utilisation de ce document. Table 9 (cont d) Annual Additional Provincial Tax Burden for Full-Time Employees, by Single and Family Coverage Province Income Full-time Full-time 65,000 125.73 302.81 90,000 178.36 429.56 Nunavut 45,000 102.34 246.47 65,000 102.34 246.47 90,000 131.58 316.89 Note: Health and dental benefits are taxable in Quebec. The costs reported are the current tax burden in 2016. Source: The Conference Board of Canada. Detailed results for the additional provincial tax burden for each provincial and territorial income tax bracket are available in Appendix B. Additional Financial Burdens CPP Contributions Increasing an employee s taxable income by changing employer-paid health and dental premiums from a non-taxable to a taxable benefit has financial implications beyond just increasing federal and provincial income tax owed. For instance, CPP contributions would increase since non-cash taxable benefits are included when calculating CPP insurable earnings. The yearly maximum pensionable earnings (YMPE) were $54,900 with a basic exemption amount of $3,500 in 2016, and the CPP employee contribution rate was 4.95 per cent. 6 This means that only employees who earned less than $51,800 in 2016 after their employer-paid health and dental premiums were added as taxable benefits see their CPP contributions increase. The annual contribution increase for full- and part-time employees with single or family coverage is shown in Table 10. The contributions are expected to increase by $72.37 or $66.38 for full- and part-time employees with single coverage, while those with family coverage see their CPP contributions increase by $174.29 or $168.65 for full- and part-time employees. 6 Canada Revenue Agency, CPP Contribution Rates, Maximums and Exemptions. 19

The Implications of Taxing Employer-Paid Health and Dental Benefits Increasing an employee s taxable income also increases CPP contributions (since non-cash taxable benefits are CPP insurable earnings). Table 10 Additional CPP Contributions, by Single and Family Coverage and Full- and Part-Time Employees Full-time 72.37 174.29 Part-time 66.38 168.65 Source: The Conference Board of Canada. CPP contributions can be claimed as a non-refundable tax credit on both federal and provincial income tax returns for all provinces except Quebec. This gives taxpayers a discount on their contributions of the respective non-refundable tax credit rate (the lowest marginal tax rate for each respective province/territory). Table 11 summarizes the additional financial burden of increased CPP contributions by single and family coverage for full- and part-time employees. Taking only the federal non-refundable tax credit for CPP contributions into account is outlined in the Federal row in Table 11. The additional burden reported for each province (except Quebec) takes into consideration both the federal tax credit discount and the provincial tax credit discount. The financial burden reported for Quebec represents QPP contributions and takes into account only the federal tax credit, as QPP contributions cannot be claimed on the provincial tax return. In addition, employer-paid health and dental benefits are already subject to income tax in Quebec so the costs reported represent the current financial burden to citizens of Quebec. Table 11 Additional CPP, by Single and Family Coverage for Full- and Part- Time Employees, by Province/Territory Full-time Part-time Full-time Part-time Federal 61.51 56.42 148.15 143.35 Newfoundland and Labrador 55.58 50.98 133.85 129.52 Prince Edward Island 54.42 49.92 131.07 126.82 Nova Scotia 54.51 50.00 131.28 127.03 New Brunswick 55.15 50.59 132.83 128.53 (continued...) 20

Le Conference Board du Canada. Tous droits réservés. Veuillez communiquer avec cboc.ca/ip si vous avez des questions au sujet de l'utilisation de ce document. Table 11 (cont d) Additional CPP, by Single and Family Coverage for Full- and Part- Time Employees, by Province/Territory Full-time Part-time Full-time Part-time Quebec 66.99 61.45 161.35 156.12 Ontario 57.86 53.07 139.34 134.84 Manitoba 53.70 49.25 129.32 125.14 Saskatchewan 53.55 49.12 128.97 124.80 Alberta 54.28 49.79 130.72 126.49 British Columbia 57.85 53.06 139.33 134.82 Yukon Territory 56.88 52.17 136.99 132.56 Northwest Territories 57.24 52.51 137.86 133.40 Nunavut 58.62 53.77 141.17 136.61 Note: Employees in Quebec contribute to the QPP at a contribution rate of 5.325 per cent. QPP contributions can be claimed on federal tax returns but not on provincial tax returns. Source: The Conference Board of Canada. Total Additional Financial Burden The total additional financial burden that Canadians incur if employerpaid health and dental benefits are subject to income tax is calculated by summing the additional federal tax owed, the additional provincial tax owed, and the additional CPP earnings (if applicable). Table 12 details the additional financial burdens for individuals earning $45,000, $65,000, and $90,000 annually. Only people earning $45,000 annually face increased CPP contributions, as those earning $65,000 and $90,000 annually already exceed the YMPE threshold. As a result, the additional financial burden is slightly higher for those earning $45,000 than for those earning $65,000 annually. The highest financial burden is encountered by those earning $90,000 annually, since they face higher marginal tax rates due to their higher income. Table 12 outlines the total additional financial burden for full-time employees with either single or family coverage. For employees with single coverage, the additional burden ranges from $402.05 for those earning $65,000 in Nunavut to $603.54 for those earning $90,000 in Manitoba. Full-time employees with family coverage face an additional 21

The Implications of Taxing Employer-Paid Health and Dental Benefits burden ranging from $968 annually (for those earning $65,000 in Nunavut) to $1,497 annually (for those earning $90,000 in Manitoba). The additional financial burden for part-time employees with either single or family coverage is slightly lower, due to the slightly lower value of the premiums. (See Appendix D, Table 2.) Table 12 Total Additional Financial Burden, by Income and Province, for Single and Family Coverage for Full-Time Employees Province Income Full-time Full-time Newfoundland and Labrador 45,000 537.15 1,315.48 65,000 497.08 1,197.14 90,000 561.88 1,396.80 Prince Edward Island 45,000 540.38 1,323.26 65,000 543.86 1,309.81 90,000 593.31 1,472.50 Nova Scotia 45,000 557.28 1,363.96 65,000 543.43 1,308.76 90,000 592.87 1,475.77 New Brunswick 45,000 556.02 1,360.94 65,000 516.38 1,243.62 90,000 590.68 1,466.16 Quebec 45,000 643.59 1,571.85 65,000 592.11 1,426.01 90,000 700.04 1,729.54 Ontario 45,000 475.83 1,167.81 65,000 433.48 1,043.98 90,000 512.31 1,277.44 Manitoba 45,000 524.31 1,284.54 65,000 554.10 1,241.46 90,000 603.54 1,497.15 Saskatchewan 45,000 535.12 1,310.60 65,000 497.08 1,197.14 90,000 561.88 1,396.80 Alberta 45,000 484.68 1,189.12 65,000 445.91 1,073.91 90,000 495.36 1,236.60 British Columbia 45,000 454.62 1,116.74 65,000 412.28 992.92 90,000 528.83 1,317.23 Yukon Territory 45,000 460.61 1,139.89 65,000 425.44 1,024.61 90,000 495.54 1,255.31 Northwest Territories 45,000 467.17 1,146.96 65,000 425.44 1,024.61 90,000 527.52 1,314.06 (continued...) 22

Le Conference Board du Canada. Tous droits réservés. Veuillez communiquer avec cboc.ca/ip si vous avez des questions au sujet de l'utilisation de ce document. Table 12 (cont d) Total Additional Financial Burden, by Income and Province, for Single and Family Coverage for Full-Time Employees Province Income Full-time Full-time Nunavut 45,000 445.16 1,093.94 65,000 402.05 968.28 90,000 480.74 1,201.39 Note: The figures reported for Quebec represent the existing financial burden because employer-paid benefits are already taxed in that province. Source: The Conference Board of Canada. Tax Burden With METC Making employer-paid health and dental benefit premiums subject to income tax makes these premiums eligible to be claimed under the METC, assuming the current structure of the METC is not changed. The METC allows tax filers to claim eligible medical expenses in excess of 3 per cent of annual income, or $2,208, whichever is less. If the additional tax burden plus other eligible medical expenses do not meet this threshold, then employees are not able to claim any amount of their premiums under the METC. Although the METC can fully offset the additional federal and provincial tax burden (CPP contributions would still increase) for people in the lowest applicable income brackets, it is not widely used only 16.8 per cent of Canadians claimed this credit in 2013 (the most recent year for which data were available), and of those who claimed the METC, only 44.7 per cent listed employment as their main source of income. 7 It must also be noted that 90 per cent or more of the services covered by health and dental plans must be eligible medical expenses under the METC for CRA to allow premiums to be claimed. Federal Tax Burden With METC If employees meet the minimum threshold (medical expenses in excess of 3 per cent of annual income, or $2,208, whichever is less) before claiming their health and dental benefit premiums, the METC subsidizes the additional tax burden at the lowest federal marginal tax rate of 15 per cent. 7 Canada Revenue Agency, Final Statistics 2015 Edition. 23

The Implications of Taxing Employer-Paid Health and Dental Benefits Although the METC can offset the additional tax burden for people in the lowest income brackets, it is not widely used. Tables 13 and 14 summarize the additional tax burden assuming the full value of the premium is claimed under the METC. For single coverage, the additional tax burden ranges from $0 in the lowest-income bracket to $263.16 for full-time employees and $241.63 for part-time employees in the highest-income bracket. For family coverage, the additional tax burden ranges from $0 in the lowest-income bracket to $633.78 for full-time employees and $613.26 for part-time employees in the highestincome bracket. (See Table 13.) Table 13 Additional Federal Tax Burden With METC, by Single and Family Coverage and Full- and Part-Time Employees Income bracket Full-time Part-time Full-time Part-time 45,282 or less 0.00 0.00 0.00 0.00 45,283 to 90,563 80.41 74.01 193.66 187.39 90,564 to 140,388 160.82 147.76 387.31 374.77 140,389 to 200,000 204.68 187.99 492.94 476.98 200,000 and over 263.16 241.63 633.78 613.26 Source: The Conference Board of Canada. Even when taking the METC in account, the total dollar amount taxed still increases with annual income. But in this case, the lowest-income bracket ($45,282 or less) has no additional tax burden. The incremental average tax rate as a result of making employer-paid health and dental benefits subject to income tax now ranges from a maximum of 0.17 per cent of annual income in the $45,283 to $90,563 and $90,564 to $140,388 income brackets to a maximum of 0.13 per cent of annual income in the highest-income bracket. (See Table 14.) 24

Le Conference Board du Canada. Tous droits réservés. Veuillez communiquer avec cboc.ca/ip si vous avez des questions au sujet de l'utilisation de ce document. Table 14 Additional Federal Tax Burden With METC, by Single and Family Coverage and Full- and Part-Time Employees (percentage of income) Income bracket Full-time Part-time Full-time Part-time 45,282 or less 0 0 0 0 45,283 to 90,563 0.08 to 0.17 0.08 to 0.16 0.21 to 0.42 0.20 to 0.41 90,564 to 140,388 0.11 to 0.17 0.10 to 0.16 0.27 to 0.42 0.26 to 0.41 140,389 to 200,000 0.10 to 0.14 0.09 to 0.13 0.24 to 0.35 0.23 to 0.33 200,000 and over 0.13 or less 0.12 or less 0.31 or less 0.30 or less Source: The Conference Board of Canada. The amount claimed under the METC is calculated using the lowest federal income tax rate, while adding employer-paid premiums to an employee s taxable income would be taxed at the employee s highest marginal tax rate. Thus, any tax savings derived from claiming the value of employer-paid premiums under the METC is offset by the additional tax owed on the salary used to pay the premiums. Assuming full usage of the METC, people earning $45,282 or less have their tax burden completely offset by the tax credit. The highest tax burden as a percentage of income would be borne by those earning between $45,283 and $140,388, reaching up to 0.17 per cent of annual income. For family coverage, the highest tax burden would also be in the $45,283 to $140,388 income range, reaching up to 0.35 per cent of annual income. Provincial Tax Burden With METC The additional provincial income tax burden assuming full use of the METC is detailed in Appendix C. Similar to the federal income tax burden under full use of the METC, any tax filer in the lowest provincial income tax bracket has the additional cost fully offset by the METC. Total Tax Burden With METC The total additional financial burden (including federal tax, provincial tax, and additional CPP contributions) to full-time employees, assuming the value of premiums is fully claimed under the METC, is summarized in Table 15. 25

The Implications of Taxing Employer-Paid Health and Dental Benefits Table 15 Total Additional Financial Burden With METC, by Income and Province, for Single and Family Coverage for Full-time Employees Province Income Full-time Full-time Newfoundland and Labrador 45,000 197.97 498.61 65,000 157.90 380.27 90,000 222.69 579.93 Prince Edward Island 45,000 177.80 450.06 65,000 181.29 436.60 90,000 230.73 599.29 Nova Scotia 45,000 209.47 526.32 65,000 195.62 471.11 90,000 257.20 638.12 New Brunswick 45,000 195.20 491.95 65,000 155.56 374.63 90,000 229.86 597.18 Quebec 45,000 131.89 339.50 65,000 80.41 193.66 90,000 188.34 497.19 Ontario 45,000 182.70 461.85 65,000 140.35 338.02 90,000 219.18 571.48 Manitoba 45,000 147.11 376.12 65,000 108.92 333.04 90,000 226.35 588.73 Saskatchewan 45,000 147.69 377.54 65,000 109.65 264.08 90,000 159.10 426.77 Alberta 45,000 119.18 308.87 65,000 80.41 193.66 90,000 129.86 356.35 British Columbia 45,000 161.35 410.43 65,000 119.01 286.61 90,000 235.56 610.91 Yukon Territory 45,000 147.74 386.39 65,000 112.57 271.12 90,000 182.70 501.84 Northwest Territories 45,000 161.61 411.07 65,000 119.88 288.72 90,000 221.96 578.17 Nunavut 45,000 167.38 424.95 65,000 124.27 299.29 90,000 202.96 532.40 Source: The Conference Board of Canada. 26

Le Conference Board du Canada. Tous droits réservés. Veuillez communiquer avec cboc.ca/ip si vous avez des questions au sujet de l'utilisation de ce document. (See Other Study Considerations for Future Examination for a brief discussion for possible future research.) Other Study Considerations for Future Examination Making employer-paid health and dental benefits subject to income tax has significant consequences. Nevertheless, other financial burdens are not considered in this study, and it is possible an increase in the value of non-cash taxable benefits would affect more than income tax and CPP contributions. For example, some taxable benefits are included in Employment Insurance (EI) insurable earnings, but current premiums for group life insurance and accidental death and dismemberment benefits are not part of EI insurable earnings. 8 If premiums for health and dental plans became taxable benefits, they would also not be insurable earnings for EI, so this briefing did not calculate any additional EI contributions. In addition, employer-paid premiums for group life insurance and accidental death and dismemberment insurance are based on employees incomes. However, non-cash taxable benefits are generally not included as part of income when calculating the premiums for these insurance policies. If non-cash taxable benefits are included, employers would also face higher premiums for group life and accidental death and dismemberment insurance. This research assumed the value of employer-paid health and dental premiums would be eligible expenses under the METC. Although this is true under the current structure of the METC, CRA could eventually make employer-paid premiums an ineligible expense, so Canadians would not receive any tax subsidy for their extended health and dental plans. Finally, future research may consider the estimated additional cost to the public system if private coverage was scaled back as a result of taxing employer-paid health and dental benefits. Sources: Canada Revenue Agency; The Conference Board of Canada. 8 Canada Revenue Agency, Benefits and Sllowances Chart. 27

The Implications of Taxing Employer-Paid Health and Dental Benefits Making employerpaid benefits subject to income tax places an additional tax burden on employees. Discussion and Conclusions Many Canadians receive supplemental health and dental coverage from their employer as a non-taxable benefit. Finance Canada estimates that non-taxation of these benefits cost $2.7 billion in forgone federal revenue in 2015. The implications from making these benefits taxable is summarized below. Additional Financial Burden As outlined so far, making employer-paid benefits subject to income tax places an additional tax burden on employees. This burden can vary significantly based on a number of factors. First, premiums for single coverage are $1,462 and premiums for family coverage are $3,521 for fulltime employees. Assuming the METC is not claimed, the total additional financial burden for people earning $45,000 ranges from $445 to $557 for single coverage, depending on province of residence. The financial burden for those with family coverage and an income of $45,000 ranges from $1,093 to $1,475, again depending on province of residence. Interestingly, the total financial burden for those earning $65,000 is slightly lower than the financial burden for those earning $45,000. The financial burden for those earning $65,000 ranges from $402 to $543 for single coverage and from $968 to $1,309 for those with family coverage. This happens because those earning $45,000 also face increased CPP contributions, while those earning $65,000 have already surpassed the yearly maximum pensionable earnings. When assuming the METC is claimed, the total financial burden for those earning $45,000 ranges from $119 to $209 for those with single coverage and from $308 to $526 for those with family coverage, depending on province of residence. Again, the total financial burden is lower for people earning $65,000 than for those earning $45,000, since those earning $45,000 face additional CPP contributions. People in the lowest-income bracket incur the highest additional tax burden as a percentage of income when assuming the METC is not used, although the METC can offset the additional tax burden if the full amount of the premiums is claimed. It must be noted that only expenses 28

Le Conference Board du Canada. Tous droits réservés. Veuillez communiquer avec cboc.ca/ip si vous avez des questions au sujet de l'utilisation de ce document. in excess of 3 per cent of annual income are eligible for the METC, so if someone earning under $45,282 has no other eligible expenses, that person may not be able to claim the premiums under the METC. According to CRA, 30.5 per cent of the tax returns filed in 2013 (most recent year for which data are available) were from Canadians earning over $50,000 annually and 10.4 per cent were from Canadians earning over $90,000. According to previous Conference Board research, METC claims increase substantially by income bracket, 9 suggesting that those in higher-income brackets are more likely to fully claim the premiums for health and dental benefits if they are subject to income tax. Seniors also represent a significant proportion of tax filers claiming the METC 10 only 44.7 per cent of Canadians who claimed the METC in 2013 had employment listed as their major source of income. Advantages of Group Insurance and Risk Pooling Despite the associated costs to taxpayers and the forgone revenue to governments, the implications of making employer-paid health and dental benefits subject to income tax are more significant. Employer-provided group insurance offers several advantages over individually obtained private insurance plans. Employers are able to pool risk across a group of employees, which lowers the administrative and policy cost per person. 11 Making health and dental benefits subject to income tax increases the cost of these benefits to all employees; however, approximately 86 per cent of employers allow employees to opt out of their extended health care plans, while 85 per cent allow employees to opt out of dental care plans (however, most employers require proof of similar coverage to allow opting out). 12 The increased tax burden incentivizes healthier employees to opt out of their benefit plans, resulting in less pooling of risk and higher premiums. The Quebec provincial government cut the tax subsidy to employer-paid health and dental benefits, which resulted in a 14 per cent decrease 9 The Conference Board of Canada, Improving Access to Canadian Health Care. 10 Ibid. 11 Stabile, The Role of Tax Subsidies. 12 The Conference Board of Canada, Benefits Benchmarking 2015. 29

The Implications of Taxing Employer-Paid Health and Dental Benefits Taxing employerpaid benefits places a larger burden on smaller employers. in employer-provided supplementary health coverage compared with provinces where the tax subsidy stayed in place. 13 Some employees who lost their coverage turned to the non-group market for supplemental health and dental insurance, but this offset only about 10 to 15 per cent of the decrease in coverage through an employer. 14 The academic literature on the topic of taxing employer-paid benefits found that small firms are affected significantly more than large firms by a change in the tax subsidy. 15,16 This suggests that taxing employer-paid benefits is regressive since it places a larger burden on smaller employers. Population Health and Wellness Making employer-paid extended health and dental benefits subject to income tax with no other fiscal changes has the potential to decrease coverage and thus decrease access to a variety of health services. This is supported by the experience in Quebec, where these benefits have been taxed since the 1990s; the increased cost of services was sufficient to reduce access. Employer-paid extended health and dental benefits are part of the prevention and disease management toolkit of Canadians. Access to private health coverage encourages people to use services such as dental care, prescription drugs, vision care, muscoskeletal care, speech and audiology services, and nutrition counselling, which in turn promotes population health and wellness. Canadians who lose their employer-provided coverage could face additional burdens in out-of-pocket medical expenses, and this affordability barrier may lead to a negative impact on overall population health and wellness. Tell us how we re doing rate this publication. www.conferenceboard.ca/e-library/abstract.aspx?did=8612 13 Finkelstein, The Effect of Tax Subsidies. 14 Ibid. 15 Stabile, The Role of Tax Subsidies. 16 Finkelstein, The Effect of Tax Subsidies. 30

Le Conference Board du Canada. Tous droits réservés. Veuillez communiquer avec cboc.ca/ip si vous avez des questions au sujet de l'utilisation de ce document. The Conference Board of Canada Acknowledgements This report was researched and written by Alexandru Dobrescu, Research Associate/Analyst, Health Economics and Policy, The Conference Board of Canada, under the guidance of Louis Thériault, Vice-President, Public Policy, and Thy Dinh, Director of Health Economics and Policy. The author would like to thank David Walker of West-Can Consultants for his external review, and Greg Sutherland, Principal Economist at The Conference Board of Canada, for his internal review. The research for this briefing was funded by the Canadian Dental Association. In keeping with Conference Board guidelines for financed research, the design and method of research, as well as the content of this briefing, were determined by the Conference Board. Disclaimer The findings and conclusions of this briefing do not necessarily reflect the views of the funder, investors, advisory committee members, or external reviewers. Any errors or omissions in fact or interpretation remain the sole responsibility of The Conference Board of Canada. About the Canadian Alliance for Sustainable Health Care The Canadian Alliance for Sustainable Health Care (CASHC) was created to provide Canadian business leaders and policy-makers with insightful, forwardlooking, quantitative analysis of the sustainability of the Canadian health care system and all of its facets. The work of the Alliance is to help Canadians better understand the conditions under which Canada s health care system is sustainable financially and in a broader sense. These conditions include the financial aspects, institutional and private firm-level performance, and the volunteer sector. CASHC publishes evidence-based, accessible, and timely reports on key health and health care systems issues. Research is arranged under these three major themes: Population Health The Structure of the Health Care System Workplace Health and Wellness Launched in May 2011, CASHC actively engages private and public sector leaders from the health and health care sectors in developing its research agenda. Some 36 companies and organizations have invested in the initiative, providing invaluable financial, leadership, and expert support. For more information about CASHC, and to sign up to receive notification of new releases, visit the CASHC website at www.conferenceboard.ca/cashc. 31

The Implications of Taxing Employer-Paid Health and Dental Benefits CASHC Member Organizations Champion Level Deloitte & Touche LLP Ontario Ministry of Health and Long-Term Care Lead Level Pfizer Canada Inc. Ministère des Finances et de l Économie Provincial Health Services Authority (British Columbia) Sun Life Financial Workplace Safety and Insurance Board (Ontario) Partner Level Alberta Health British Columbia Ministry of Health Green Shield Canada Health Canada Johnson & Johnson Medical Companies/Janssen Inc. Canada LifeLabs Medical Laboratory Services Participant Level AbbVie Corporation Alzheimer s Society of Canada Canadian Association for Retired Persons (CARP) Canadian Blood Services Canadian Dental Association Canadian Medical Association Canadian Nurses Association Centric Health Consumer Health Products Canada HealthPartners Loblaw Companies Limited Mercer (Canada) Limited The Co-operators Group Limited The Great-West Life Assurance Company Workers Compensation Board of Nova Scotia Xerox Canada Ltd. Innovative Medicines Canada Manitoba Health Neighbourhood Pharmacy Association of Canada Roche Canada The Arthritis Society Trillium Health Partners Workplace Safety & Prevention Services 32

Le Conference Board du Canada. Tous droits réservés. Veuillez communiquer avec cboc.ca/ip si vous avez des questions au sujet de l'utilisation de ce document. Appendix A The Conference Board of Canada APPENDIX A Federal Tax Burden Tables 1 and 2 summarize the additional federal tax burden without any claims under the METC. The total annual additional tax burden is slightly higher for full-time employees for both single and family coverage. For single coverage, the additional tax burden ranges from $219.30 in the lowest-income bracket to $482.46 in the highest-income bracket for full-time employees, and from $200.90 in the lowest-income bracket to $442.53 in the highest-income bracket for part-time employees. For family coverage, the additional tax burden ranges from $528.15 in the lowestincome bracket to $1,161.93 in the highest-income bracket for full-time employees and from $511.05 in the lowest-income bracket to $1,124.31 in the highest-income bracket for part-time employees. (See Table 1.) Table 1 Annual Additional Federal Tax Burden, by Single and Family Coverage and Full- and Part-Time Employees Income bracket Full-time Part-time Full-time Part-time 45,282 or less 219.30 200.90 528.15 511.05 45,283 to 90,563 299.71 274.91 721.81 698.44 90,564 to 140,388 380.12 348.66 915.46 885.82 140,389 to 200,000 423.98 388.89 1,021.09 988.03 Over 200,000 482.46 442.53 1,161.93 1,124.31 Source: The Conference Board of Canada. Although the total dollar amount taxed increases with income, the total additional tax burden as a percentage of total income tends to be lower for people in higher-income tax brackets. The incremental average tax rate, as a result of making employer-paid health and dental benefits 33

The Implications of Taxing Employer-Paid Health and Dental Benefits subject to income tax, ranges from at least 0.48 per cent of annual income in the lowest-income bracket to 0.22 per cent or less of annual income in the highest tax bracket for employees with single coverage. The tax burden of those with family coverage is significantly higher, ranging from at least 1.16 per cent of annual income in the lowest-income bracket to a maximum of 0.58 per cent of annual income in the highestincome bracket for full-time employees. (See Table 2.) Table 2 Annual Additional Federal Tax Burden, by Single and Family Coverage and Full- and Part-Time Employees (percentage of income) Income bracket Full-time Part-time Full-time Part-time 45,282 or less 0.48 or more 0.44 or more 1.16 or more 1.12 or more 45,283 to 90,563 0.33 to 0.66 0.30 to 0.61 0.79 to 1.59 0.77 to 1.54 90,564 to 140,388 0.27 to 0.41 0.24 to 0.38 0.65 to 1.01 0.63 to 0.97 140,389 to 200,000 0.21 to 0.3 0.19 to 0.27 0.51 to 0.72 0.49 to 0.70 Over 200,000 0.24 or less 0.22 or less 0.58 or less 0.56 or less Source: The Conference Board of Canada. What is clear from Table 2 is that if no individual makes a claim using the METC, those in lower-income brackets have a higher additional tax burden as a percentage of income than those in higher-income brackets. There are several reasons why tax filers may not use the METC, including not being aware of it or the large number of medical expenses that qualify (including premiums for health and dental plans). As well, CRA requires tax filers to maintain all their medical receipts for expenses claimed. 34

Le Conference Board du Canada. Tous droits réservés. Veuillez communiquer avec cboc.ca/ip si vous avez des questions au sujet de l'utilisation de ce document. Appendix B The Conference Board of Canada APPENDIX B Provincial Tax Burden Table 1 Annual Additional Provincial Tax Burden, by Single and Family Coverage and Full- and Part-Time Employees Income bracket Full-time Part-time Full-time Part-time Newfoundland and Labrador 35,418 or less 119.88 109.96 288.72 279.37 35,149 to 70,295 197.37 181.04 475.34 459.95 70,296 to 125,500 212.72 195.12 512.31 495.72 125,501 to 175,700 231.00 211.88 556.32 538.31 Over 175,700 245.62 225.29 591.53 572.38 Prince Edward Island 31,984 or less 143.28 131.42 345.06 333.89 31,985 to 63,969 201.76 185.06 485.90 470.17 Over 63,969 244.15 223.95 588.01 568.97 Nova Scotia 29,590 or less 128.51 117.87 309.50 299.48 29,951 to 59,180 218.57 200.48 526.39 509.35 59,181 to 93,000 243.72 223.54 586.95 567.95 93,001 to 150,000 255.85 234.68 616.18 596.23 Over 150,000 307.02 281.61 739.41 715.47 New Brunswick 40,492 or less 141.52 129.81 340.83 329.80 40,493 to 80,985 216.67 198.74 521.81 504.92 80,986 to 131,664 241.52 221.53 581.67 562.84 131,665 to 150,000 260.82 239.23 628.15 607.81 Over 150,000 296.79 272.22 714.76 691.62 (continued...) 35

The Implications of Taxing Employer-Paid Health and Dental Benefits Table 1 (cont d) Annual Additional Provincial Tax Burden, by Single and Family Coverage and Full- and Part-Time Employees Income bracket Full-time Part-time Full-time Part-time Quebec 42,390 or less 233.92 214.56 563.36 545.12 42,391 to 84,780 292.40 268.20 704.20 681.40 84,781 to 103,150 350.88 321.84 845.04 817.68 Over 103,150 376.47 345.31 906.66 877.30 Ontario 41,536 or less 73.83 67.72 177.81 172.05 41,537 to 83,075 133.77 122.70 322.17 311.74 83,076 to 150,000 163.16 149.66 392.94 380.22 150,001 to 220,000 177.78 163.07 428.15 414.29 Over 220,000 192.40 176.48 463.36 448.36 Manitoba 31,000 or less 157.90 144.83 380.27 367.96 31,001 to 67,000 186.41 170.98 448.93 434.39 Over 67,000 254.39 233.33 612.65 592.82 Saskatchewan 44,601 or less 160.82 147.51 387.31 374.77 44,602 to 127,430 190.06 174.33 457.73 442.91 Over 127,430 219.30 201.15 528.15 511.05 Alberta 125,000 or less 146.20 134.10 352.10 340.70 125,001 to 150,000 175.44 160.92 422.52 408.84 150,001 to 200,000 190.06 174.33 457.73 442.91 200,001 to 300,000 204.68 187.74 492.94 476.98 Over 300,000 219.30 201.15 528.15 511.05 British Columbia 38,210 or less 73.98 67.85 178.16 172.39 38,211 to 76,241 112.57 103.26 271.12 262.34 76,242 to 87,741 153.51 140.81 369.71 357.74 87,742 to 106,543 179.68 164.81 432.73 418.72 Over 106,543 214.91 197.13 517.59 500.83 Yukon Territory 45,282 or less 93.57 85.82 225.34 218.05 45,283 to 90,563 125.73 115.33 302.81 293.00 90,564 to 140,388 159.36 146.17 383.79 371.36 140,389 to 500,000 187.14 171.65 450.69 436.10 Over 500,000 219.30 201.15 528.15 511.05 (continued...) 36

The Implications of Taxing Employer-Paid Health and Dental Benefits APPENDIX C Tax Burden With METC Table 1 Annual Additional Provincial Tax Burden With METC, by Single and Family Coverage and Full- and Part-Time Employees Income bracket Full-time Part-time Full-time Part-time Newfoundland and Labrador 35,418 or less 0.00 0.00 0.00 0.00 35,149 to 70,295 77.49 71.07 186.61 180.57 70,296 to 125,500 92.84 85.15 223.58 216.34 125,501 to 175,700 111.11 101.92 267.60 258.93 Over 175,700 125.73 115.33 302.81 293.00 Prince Edward Island 31,984 or less 0.00 0.00 0.00 0.00 31,985 to 63,969 58.48 53.64 140.84 136.28 Over 63,969 100.88 92.53 242.95 235.08 Nova Scotia 29,590 or less 0.00 0.00 0.00 0.00 29,951 to 59,180 90.06 82.61 216.89 209.87 59,181 to 93,000 115.21 105.67 277.45 268.47 93,001 to 150,000 127.34 116.80 306.68 296.75 Over 150,000 178.51 163.74 429.91 415.99 New Brunswick 40,492 or less 0.00 0.00 0.00 0.00 40,493 to 80,985 75.15 68.93 180.98 175.12 80,986 to 131,664 100.00 91.72 240.84 233.04 131,665 to 150,000 119.30 109.43 287.31 278.01 Over 150,000 155.26 142.41 373.93 361.82 (continued...) 38

Le Conference Board du Canada. Tous droits réservés. Veuillez communiquer avec cboc.ca/ip si vous avez des questions au sujet de l'utilisation de ce document. Appendix C The Conference Board of Canada Table 1 (cont d) Annual Additional Provincial Tax Burden, by Single and Family Coverage and Full- and Part-Time Employees Income bracket Full-time Part-time Full-time Part-time Quebec 42,390 or less 0.00 0.00 0.00 0.00 42,391 to 84,780 0.00 0.00 0.00 0.00 84,781 to 103,150 58.48 53.64 140.84 136.28 Over 103,150 84.07 77.11 202.46 195.90 Ontario 41,536 or less 0.00 0.00 0.00 0.00 41,537 to 83,075 59.94 54.98 144.36 139.69 83,076 to 150,000 89.33 81.94 215.13 208.17 150,001 to 220,000 103.95 95.35 250.34 242.24 Over 220,000 118.57 108.76 285.55 276.31 Manitoba 31,000 or less 0.00 0.00 0.00 0.00 31,001 to 67,000 28.51 26.15 68.66 66.44 Over 67,000 96.49 88.51 232.39 224.86 Saskatchewan 44,601 or less 0.00 0.00 0.00 0.00 44,602 to 127,430 29.24 26.82 70.42 68.14 Over 127,430 58.48 53.64 140.84 136.28 Alberta 125,000 or less 0.00 0.00 0.00 0.00 125,001 to 150,000 29.24 26.82 70.42 68.14 150,001 to 200,000 43.86 40.23 105.63 102.21 200,001 to 300,000 58.48 53.64 140.84 136.28 Over 300,000 73.10 67.05 176.05 170.35 British Columbia 38,210 or less 0.00 0.00 0.00 0.00 38,211 to 76,241 38.60 35.40 92.95 89.94 76,242 to 87,741 79.53 72.95 191.54 185.34 87,742 to 106,543 105.70 96.95 254.57 246.33 Over 106,543 140.94 129.27 339.42 328.43 Yukon Territory 45,282 or less 0.00 0.00 0.00 0.00 45,283 to 90,563 32.16 29.50 77.46 74.95 90,564 to 140,388 65.79 60.35 158.45 153.32 140,389 to 500,000 93.57 85.82 225.34 218.05 Over 500,000 125.73 115.33 302.81 293.00 (continued...) 39

The Implications of Taxing Employer-Paid Health and Dental Benefits Table 1 (cont d) Annual Additional Provincial Tax Burden, by Single and Family Coverage and Full- and Part-Time Employees Income bracket Full-time Part-time Full-time Part-time Northwest Territories 41,011 or less 0.00 0.00 0.00 0.00 41,012 to 82,024 39.47 36.21 95.07 91.99 82,025 to 133,353 92.11 84.48 221.82 214.64 Over 133,353 119.15 109.29 286.96 277.67 Nunavut 43,176 or less 0.00 0.00 0.00 0.00 43,177 to 86,351 43.86 40.23 105.63 102.21 86,352 to 140,388 73.10 67.05 176.05 170.35 Over 140,388 109.65 100.58 264.08 255.53 Source: The Conference Board of Canada. Table 2 Total Additional Financial Burden With METC, by Income and Province, for Single and Family Coverage for Part-Time Employees Province Income Part-time Part-time Newfoundland and Labrador 45,000 197.97 498.61 65,000 157.90 380.27 90,000 222.69 579.93 Prince Edward Island 45,000 177.80 450.06 65,000 181.29 436.60 90,000 230.73 599.29 Nova Scotia 45,000 209.47 526.32 65,000 195.62 471.11 90,000 257.20 638.12 New Brunswick 45,000 195.20 491.95 65,000 155.56 374.63 90,000 229.86 597.18 Quebec 45,000 131.89 339.50 65,000 80.41 193.66 90,000 188.34 497.19 Ontario 45,000 182.70 461.85 65,000 140.35 338.02 90,000 219.18 571.48 Manitoba 45,000 147.11 376.12 65,000 108.92 333.04 90,000 226.35 588.73 Saskatchewan 45,000 147.69 377.54 65,000 109.65 264.08 90,000 159.10 426.77 (continued...) 40

Le Conference Board du Canada. Tous droits réservés. Veuillez communiquer avec cboc.ca/ip si vous avez des questions au sujet de l'utilisation de ce document. Appendix C The Conference Board of Canada Table 2 (cont d) Total Additional Financial Burden With METC, by Income and Province, for Single and Family Coverage for Part-Time Employees Province Income Part-time Part-time Alberta 45,000 119.18 308.87 65,000 80.41 193.66 90,000 129.86 356.35 British Columbia 45,000 161.35 410.43 65,000 119.01 286.61 90,000 235.56 610.91 Yukon Territory 45,000 147.74 386.39 65,000 112.57 271.12 90,000 182.70 501.84 Northwest Territories 45,000 161.61 411.07 65,000 119.88 288.72 90,000 221.96 578.17 Nunavut 45,000 167.38 424.95 65,000 124.27 299.29 90,000 202.96 532.40 Source: The Conference Board of Canada. 41

The Implications of Taxing Employer-Paid Health and Dental Benefits APPENDIX D Financial Burden for Part-Time Employees Table 1 Annual Additional Provincial Tax Burden, by Single and Family Coverage for Part-Time Employees Province Income Part-time Part-time Newfoundland and Labrador 45,000 181.04 459.95 65,000 181.04 459.95 90,000 195.12 495.72 Prince Edward Island 45,000 185.06 470.17 65,000 223.95 568.97 90,000 223.95 568.97 Nova Scotia 45,000 200.48 509.35 65,000 223.54 567.95 90,000 223.54 571.33 New Brunswick 45,000 198.74 504.92 65,000 198.74 504.92 90,000 221.53 562.84 Quebec 45,000 268.20 681.40 65,000 268.20 681.40 90,000 321.84 817.68 Ontario 45,000 122.70 311.74 65,000 122.70 311.74 90,000 149.66 380.22 Manitoba 45,000 170.98 434.39 65,000 233.33 499.82 90,000 233.33 592.82 Saskatchewan 45,000 181.04 459.95 65,000 181.04 459.95 90,000 195.12 495.72 Alberta 45,000 134.10 340.70 65,000 134.10 340.70 90,000 134.10 340.70 British Columbia 45,000 103.26 262.34 65,000 103.26 262.34 (continued...) 42

Le Conference Board du Canada. Tous droits réservés. Veuillez communiquer avec cboc.ca/ip si vous avez des questions au sujet de l'utilisation de ce document. Appendix D The Conference Board of Canada Table 1 (cont d) Annual Additional Provincial Tax Burden, by Single and Family Coverage for Part-Time Employees Province Income Part-time Part-time 90,000 164.81 418.72 Yukon Territory 45,000 109.12 286.80 65,000 115.33 293.00 90,000 133.20 358.39 Northwest Territories 45,000 115.33 293.00 65,000 115.33 293.00 90,000 163.60 415.65 Nunavut 45,000 93.87 238.49 65,000 93.87 238.49 90,000 120.69 306.63 Note: Health and dental benefits are taxable in Quebec. The costs reported are the current tax burden in 2016. Source: The Conference Board of Canada. Table 2 Total Additional Financial Burden, by Income and Province, for Single and Family Coverage for Part-Time Employees Province Income Part-time Part-time Newfoundland and Labrador 45,000 491.41 1,272.39 65,000 455.94 1,158.38 90,000 512.81 1,350.57 Prince Edward Island 45,000 494.37 1,279.91 65,000 498.85 1,267.40 90,000 541.64 1,423.82 Nova Scotia 45,000 509.87 1,319.30 65,000 498.45 1,266.38 90,000 541.24 1,426.18 New Brunswick 45,000 508.72 1,316.37 65,000 473.64 1,203.35 90,000 539.23 1,417.69 Quebec 45,000 589.05 1,520.45 65,000 543.11 1,379.84 90,000 639.54 1,672.54 Ontario 45,000 435.17 1,129.51 65,000 397.61 1,010.18 90,000 467.35 1,235.08 Manitoba 45,000 479.62 1,242.46 65,000 508.24 1,198.25 90,000 551.03 1,447.67 Saskatchewan 45,000 489.55 1,267.67 (continued...) 43

The Implications of Taxing Employer-Paid Health and Dental Benefits Table 2 (cont d) Total Additional Financial Burden, by Income and Province, for Single and Family Coverage for Part-Time Employees Province Income Part-time Part-time 65,000 455.94 1,158.38 90,000 512.81 1,350.57 Alberta 45,000 443.29 1,150.12 65,000 409.01 1,039.14 90,000 451.80 1,195.56 British Columbia 45,000 415.71 1,080.08 65,000 378.16 960.77 90,000 482.50 1,273.58 Yukon Territory 45,000 420.69 1,102.28 65,000 390.23 991.44 90,000 450.89 1,213.25 Northwest Territories 45,000 427.23 1,109.33 65,000 390.23 991.44 90,000 481.30 1,270.51 Nunavut 45,000 407.04 1,058.03 65,000 368.78 936.93 90,000 438.39 1,161.49 Source: The Conference Board of Canada. 44

Le Conference Board du Canada. Tous droits réservés. Veuillez communiquer avec cboc.ca/ip si vous avez des questions au sujet de l'utilisation de ce document. Appendix E The Conference Board of Canada APPENDIX E Bibliography Canada Revenue Agency. Benefits and Allowances Chart. December 2016. www.cra-arc.gc.ca/tx/bsnss/tpcs/pyrll/bnfts/bnchrt-eng.html (accessed February 1, 2017). CPP Contribution Rates, Maximums and Exemptions. November 1, 2016. www.cra-arc.gc.ca/tx/bsnss/tpcs/pyrll/clcltng/cpp-rpc/cnt-chrt-pfeng.html (accessed January 5, 2017).. Final Statistics 2015 Edition (for the 2013 Tax Year). October 13, 2016. www.cra-arc.gc.ca/gncy/stts/t1fnl/2013/menu-eng.html#h7 (accessed January 31, 2016, 2016).. Income Tax Folio S2-F3-C2, Benefits and Allowances Received From Employment. 2016. Ottawa: Canada Revenue Agency. www.cra-arc.gc.ca/tx/tchncl/ncmtx/fls/s2/f3/s2-f3-c2-eng.html#n106e5 (accessed December 15, 2016). Department of Finance Canada. Report on Federal Tax Expenditures Concepts, Estimates and Evaluations 2016. Ottawa: Department of Finance Canada, 2016. Finkelstein, A. The Effect of Tax Subsidies to Employer-Provided Supplementary Health Insurance: Evidence From Canada. Journal of Public Economics 84 (2002): 305 39. Stabile, M. The Role of Tax Subsidies in the Market for Health Insurance. International Tax and Public Finance 9 (2002): 33 50. The Conference Board of Canada (CBOC). Benefits Benchmarking 2015. Ottawa: CBoC, 2016.. Improving Access to Canadian Health Care: The Role of Tax Policies. Ottawa: CBoC, 2016. 45

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