Employers considering payouts in lieu of health and
dental benefits should move quickly, as the Canada Revenue Agency
(the CRA) has indicated that (subject to certain exceptions for
insolvent employers) such payments will be taxable beginning in
In response to commentary included in the federal budget, the
CRA recently posted a series of Qs & As clarifying its
administration of the rules regarding the tax treatment of lump sum
amounts received in lieu of health and dental coverage. In the
past, the CRA had taken the position that lump sum amounts received
by retirees or employees upon cancellation of their private health
coverage could be considered "advance reimbursements of
medical expenses" and, as a result, not taxable when received.
Upon reconsideration, the CRA has changed its position and
concluded that such amounts are in fact taxable when received.
The CRA is providing advance notice of this change in position,
by allowing these lump sum payments to continue on a tax-free basis
until 2012. However, where the payments are in relation to an
employer's insolvency that arose prior to 2012, the payment
eventually made to any retirees or former employees would not be
subject to CRA's new position on taxability even if it is made
in 2012 or later.
Further details regarding reporting and withholding requirements
are included in the CRA Qs & As.
Lesha Van Der Bij is a member of Osler's
Knowledge Management team, Lesha facilitates Osler's efficient,
effective and timely delivery of cutting-edge legal advice to
clients by ensuring that the Pensions & Benefits and Labour
& Employment Departments' legal, intellectual and practical
expertise is captured and readily accessible by all legal
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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