While having little direct impact for plan sponsors with respect to retirement savings or benefit plans, conservative budget nonetheless confirms government's renewed commitment to intentions set in motion the year before.
TORONTO, March 5 /CNW/ - Widely broadcasted speculation by media that this year's federal budget will show little to pique tax payers' interest was confirmed yesterday. Yet despite the seemingly lackluster outcome, Aon Consulting has prepared a commentary (http://www.aon.ca/pubs/RDY/10/mar/Mar2010SpReady_FedBudget.pdf) underlining areas of interest to plan sponsors and plan members, particularly in retirement/investment, corporate tax, health care and employment insurance.
On October 27, 2009, the Minister of Finance released a package of measures to modernize the federal pension framework. While the budget only addressed an increase in the maximum pension surplus threshold for defined benefit pension plans from 10 per cent to 25 per cent, it nevertheless reiterates the government's commitment to pursue the consultation process in March, in advance of the Finance Minister's meeting in May.
To stay abreast of breaking developments surrounding Canadian pension visit Aon's Situation Room (http://www.aon.ca/situationroom).
GST on Financial Services
The budget confirms the government's intention to address recent court decisions on the GST/HST. Of interest to employers was the Federal Court of Appeal decision in The Queen v. General Motors of Canada Ltd., which determined that General Motors was the recipient of investment management services provided with respect to the trust funds of the General Motors pension plans. The Court held that General Motors was entitled to claim input tax credits (ITCs) on such services. The proposed legislation introduced on September 23, 2009 would allow employers to recover ITCs for GST paid on expenses related to commercial activities, but not for GST paid on expenses related to investment activities of the pension plan.
Financial services are generally exempt from GST. On December 14, 2009 the government announced further proposals to specify that investment management services, facilitatory services and credit management services would not be considered financial services.
Once again, the budget included a change to eliminate a currently eligible expense under the Medical Expense Tax Credit (METC), and this time around, for purely cosmetic procedures. The last change to the METC involving removal of over-the-counter drugs had unintended impact on private plan sponsors, which created a lot of confusion in the industry. While the current change is not as significant, it would be interesting to see the ripple effect to plan sponsors.
It is also worth noting that the government confirmed its intention to proceed with previously announced tax measures including amendments to facilitate the implementation of a "new" type of taxable trust in the Income Tax Act (Canada), namely an employee life and health trust (ELHT). The differences between this and existing health and welfare trusts remain to be seen.
In 2011, premium rates will be set by an independent arm's length Crown Corporation, the Canada Employment Insurance Financing Board (CEIFB) in order to balance the EI program over time, subject to a 15-cent limit on annual changes. The current employment insurance (EI) premium rate will remain at $1.73 per $100 of insurable earnings until the end of 2010.
The government has committed additional funding to ensure the continuation of extended payment of EI benefits and the scope of the work-sharing program. Existing or recently terminated work-sharing agreements will be extended by an additional 26 weeks, to a maximum of 78 weeks.
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Aon Consulting is among the top global human capital consulting firms, with 2008 revenues of $1.358 billion and more than 6,300 professionals in 229 offices worldwide. Aon Consulting works with organizations to improve business performance and shape the workplace of the future through employee benefits, talent management and rewards strategies and solutions. Aon Consulting was named the best employee benefit consulting firm by the readers of Business Insurance magazine in 2006, 2007, 2008 and 2009. For more information on Aon, please visit www.aon.mediaroom.com.
Aon Corporation (NYSE: AOC) is the leading global provider of risk management services, insurance and reinsurance brokerage, and human capital consulting. Through its more than 37,000 colleagues worldwide, Aon readily delivers distinctive client value via innovative and effective risk management and workforce productivity solutions. Aon's industry-leading global resources and technical expertise are delivered locally through more than 500 offices in more than 120 countries. Named the world's best broker by Euromoney magazine's 2008 and 2009 Insurance Survey, Aon also ranked highest on Business Insurance's listing of the world's largest insurance brokers based on commercial retail, wholesale, reinsurance and personal lines brokerage revenues in 2008. A.M. Best deemed Aon the number one insurance broker based on brokerage revenues in 2007 and 2008, and Aon was voted best insurance intermediary, best reinsurance intermediary and best employee benefits consulting firm in 2007, 2008 and 2009 by the readers of Business Insurance. For more information on Aon, log onto http://www.aon.com.
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