Medical Benefits

Have you been benefiting by redirecting a portion of your bonus to a health care spending account?

Employer payments to a private health services plan (i.e. health insurance) for the benefit of an employee are generally not a taxable benefit.

Where an employee was eligible to irrevocably elect to allocate a portion of their bonus to a credit under a health care spending account, Canada Revenue Agency previously considered the payment to be by the employer for a private health services plan. Consequently, the payments of the medical expenses by the company would not be included in the employee’s income.

Canada Revenue Agency has recently changed their position on this matter. Effective January 1, 2013, any bonuses allocated to a health care spending account by the employee will not be eligible for this tax-free treatment and must be included in employment income. This change does not affect the non-taxable benefit treatment of non-discretionary employer payments for a private health services.