Proposals to Convert Health and Welfare Trusts to Employee Life and Health Trusts

  • January 14, 2020
  • Hennadiy Kutsenko

In the Federal Budget tabled on February 27, 2018, the federal government announced its intention to eliminate health and welfare trusts (HWTs) for taxation years after 2020. No new HWTs could be created after this date. On May 27th, 2019, proposed amendments to the employee life and health trust (ELHT) regime in the Income Tax Act (the Act) were released. These amendments include changes to the current ELHT regime, as well as the introduction of new rules to facilitate the conversion of HWTs into ELHTs.

Changes to ELHT Regime

The ELHT rules previously required that an ELHT be a Canadian resident trust[1]. The proposed amendments eliminate this requirement and allow non-resident trusts to qualify as ELHTs, provided that:

  • employee benefits are provided to Canadian resident employees and non-resident employees;
  • one or more employers that participate in the ELHT are non-resident; and,
  • the ELHT is required to be resident in a country where a participating employer resides (other than Canada)[2].

The ELHT rules also previously required that the employee beneficiaries of an ELHT be employees of a participating employer[3]. The proposed amendments now allow beneficiaries of a former employer as well, whereby if an employer stops making contributions, the employee (and their spouse and related household members or dependents) can continue to receive benefits[4].