Tax Question:

What is the latest information on the end of Health and Welfare Trusts?

Facts:

A Health and Welfare Trust (HWT) is a trust established by an employer for the purpose of providing health and welfare benefits to its employees. The 2018 Federal Budget announced that CRA will no longer apply their administrative positions with respect to Health and Welfare Trusts after the end of 2020. Draft legislative provisions have been released to convert existing HWT into Employee Life and Health Trusts (ELHT) by the end of 2020.

Discussion:

The drafted legislation and transition rules enable existing HWT to convert to ELHT so that just one set of tax rules will apply to all of these arrangements after 2020.

HWT’s will either need to be wound up or converted to an ELHT by December 31, 2020. The draft legislation provisions released May 27, 2019 also include amendments to the existing ELHT tax rules to allow existing HWT that were established under collective bargaining plans but otherwise meet the criteria of an ELHT to be deemed an ELHT until such time as the plans are renegotiated and able to comply with all the conditions of an ELHT or until the end of 2022.

The main differences between a HWT and an ELHT is that there are more controls and less employee categories permitted under an ELHT to ensure that owners receive the same benefits as employees. For details on the differences between HWT and ELHT, please refer to our previous FAQ #287.

Recommendation

If you would like more information on planning to convert your Health and Welfare Trust to an Employee Life and Health Trust, please get in touch.