EMPLOYEE HEALTH AND WELFARE TRUST (EHWTs)
Employee Health and Welfare Trusts (EHWTs) are arrangements created by employers to provide health, dental, and welfare benefits to employees. These trusts operate independently of the employer, with contributions used exclusively for employee benefits.
Key Features of EHWTs
- EHWTs are structured to provide benefits like health and dental coverage, disability support, and life insurance.
- Employer contributions are tax-deductible as long as they comply with the Income Tax Act (ITA).
- The trust itself is responsible for managing contributions and distributing benefits to eligible employees.
- Trustees must ensure that funds are used solely for the intended purpose of supporting employee welfare.
Tax Implications of EHWTs
- Benefits received by employees from the trust are generally taxable as income unless explicitly exempt under the ITA.
- Income earned within the trust, such as investment returns, is taxable and must be reported in the trust’s T3 Income Tax and Information Return.
- Employers must accurately calculate and document their contributions to the trust for tax deduction purposes.
Reporting and Compliance
Employers must ensure the trust complies with CRA regulations by:
- Filing annual T3 Trust Income Tax Returns.
- Documenting all contributions and benefit payouts.
- Maintaining clear records to substantiate the use of trust funds.
Employee Life and Health Trusts (ELHTs)
Employee Life and Health Trusts (ELHTs) are a modernized version of EHWTs introduced to enhance the management of health and life benefits for employees. ELHTs are governed under Section 144.1 of the ITA and are designed to align with changing employment and healthcare landscapes.
Key Features of ELHTs
- ELHTs are established by one or more employers to provide life, health, and disability benefits.
- Contributions made by employers are tax-deductible, provided they meet the defined benefit criteria.
- Payouts from the trust to employees are taxable only when received.
- ELHTs must operate independently and cannot be controlled by the employer to ensure transparency and compliance.
Eligibility Criteria for ELHTs
To qualify as an ELHT under CRA guidelines, the trust must:
- Be used exclusively to provide health and life benefits to employees and their dependents.
- Meet specific conditions outlined in Section 144.1 of the ITA.
- Ensure contributions are reasonable and aligned with employee benefit needs.
Advantages of ELHTs
- Streamlines the management of employee benefits, ensuring a clear separation between employer funds and employee benefits.
- Enhances transparency and accountability in the use of benefit funds.
- Allows employers to provide comprehensive benefits without directly managing them.
Additional CRA Resources
For further details, consult the following CRA resources:
