The 2018 Federal Budget proposed phasing out Health and Welfare Trusts (HWTs). HWTs would be allowed to convert to Employee Life and Health Trusts (ELHTs).

The government’s effort to phase out HWTs in favour of ELHTs is generally good news for plan sponsors, who have long had concerns about the tax treatment and the accumulation of surplus under an HWT.

The Department of Finance has released draft regulations to facilitate the conversion of existing HWTs to ELHTs. HWTs that are not converted to ELHTs or wound up by the end of 2020 will be considered “employee benefit plans.”

Designated benefits provided by such plans would be taxed in the same way as if provided through an HWT or an ELHT. This employee benefit plan treatment would potentially have an impact on the timing of employers’ deductions for contributions made to these plans.