Canada:
Employee Life and Health Trusts: Key Considerations for Changes to Income Tax Law in Bill C-30
May 28, 2021
Lawson Lundell LLP
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On April 30, 2021, Bill C-30, the latest draft law to implement the federal budget, was examined in the House of Commons on a first reading. Bill C-30 contains the changes to the Income Tax Act necessary to bring about the Employee Life and Confidence Conversion Initiative first announced by the Canadian government in the 2018 federal budget (ELHT). In short, this initiative is to end the CRA guidelines on health and welfare trusts and call for the conversion of health and welfare trusts into ELHTs.
While Finance Canada previously released draft ELHT bill for comment, Bill C-30 marks the first time the proposed changes have been incorporated into bill. This signals that the most recently announced changeover deadline of January 1, 2022 will probably remain unchanged. This means that now is the time for existing health and welfare foundations to start planning the transition process, if they have not already done so.
The following is a list of some key points to consider for health and wellbeing confidence in the ELHT conversion process:
- Trust agreements need to be modified to reflect the ELHT conversion. Since ELHTs are essentially similar to similar trust vehicles as health and welfare trusts, the changes are expected to be relatively straightforward. They are likely to include changes to the recitals, the replacement of health and welfare-specific provisions with ELHT-specific provisions, and the inclusion of provisions that reflect certain ELHT rules, such as: B. Rules regarding residency requirements, key employees, termination and dissolution of the trust fund.
- Given the year-end deadline, it is helpful to determine what internal consents or resolutions are required to implement the changes to the conversion and trust agreement, and how long it may take to have the appropriate signatures for those consents and resolutions.
- The 2021 budget indicated that the federal government intended to make certain changes to the Income Tax Act that would require new reporting from beneficiaries for trusts when it came into effect. Such reporting would apply to trust declarations that are required to be filed for 2021 and subsequent tax years. The current draft law exempts ELHTs, but not health and welfare trusts. Accordingly, plan administrators may need to consider the status of this legislation when determining the effective date for changes to the trust agreement. We will follow up this issue and monitor for changes in proposed legislation or rating agency guidelines.
- On or before the first filing date of the trust after 2021 (ie in 2022), the Minister must be notified in the prescribed form that the Health and Welfare Trust has been converted into an ELHT. There are limited exceptions to this requirement when trusts are considered ELHTs or when a trust-to-trust transfer has occurred.
Plan administrators can rest assured that while a reasonable amount of work will go into the conversion process, not much is likely to change after the conversion due to the very similar nature of health and welfare foundations and ELHTs.
The content of this article is intended to provide general guidance on the subject. A professional should be obtained about your particular circumstances.
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