HWTs, ELHTs and the ITA

  • August 29, 2019

The CBA’s Pensions and Benefits Law Section is generally supportive of proposals from Finance Canada to convert health and welfare trusts to employee life and health trusts, and to amend some existing ELHT rules under the Income Tax Act.

That said, it has some suggestions for improvement.

For example, according to the backgrounder, existing HWTs will be able to elect to continue as ELHTs without adverse tax consequences and without having to create a new trust, if CRA is properly notified. The proposals also allow for a tax-free rollover of assets from an existing HWT to a new ELHT. The draft legislation, however, “does not expressly provide for these trusts to elect to be ELHTs, or for the prescribing of regulations to govern such an election.” The Section recommends clarifying the legislation.

The Section makes a number of recommendations in terms of scheduling deadlines, for example, it urges the Finance Department to wait until the amendments to the Income Tax Act come into effect before setting dates for conversion and end dates for deemed ELHT status.

“Restructuring trusteed arrangements cannot begin until all plan sponsors, trustees and other interested parties have confirmation of the final rules,” the Section says in its submission. “We anticipate many programs will need more time to determine appropriate future arrangements and complete necessary restructuring. We continue to recommend a minimum three-year transition period for all trusteed programs from the date the final supporting changes to the ITA come into force.”

Other recommendations deal with the composition of the board of trustees, non-resident trusts, the deductibility of employer contributions, HWT mergers, prohibited investments, and a revised definition for Employment Benefit Plans for taxation purposes.

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