Our taxes allow us to pay for services for the whole community but at what price?

Our taxes allow us to pay for services for the whole community but at what price?

By: Joanne Déziel, rlu – group insurance and group annuity plans advisor

• Some taxes are visible and we can appreciate their financial impact on us such as income taxes, sales taxes, etc.
• Other taxes are less obvious as they form part of the total price such as taxes on gas or on insurance premium.
• The insurance premium tax is applied onto itself, meaning that the tax of 3.48 % is also taxed at 3.48 %, resulting in double taxation making the effective rate 3.61 % (next April, the 3.30 % will result to 3.41 %)
• Furthermore, this tax of 3.61 % is included in the group insurance premium to which the Quebec Sales Tax of 9 % is applied. This makes Quebec, the province with the highest tax rate on group insurance premiums in Canada.
• Also in Quebec, the portion of the group insurance premium paid by the employer, for most coverages, becomes a taxable benefit in the hands of the employee. Additionally, in a large majority of cases, the premium paid by the employer is added to his payroll onto which other social charges apply.
• At the end of the day, the compound effect is considerable.

It is time to reflect

The average family in Quebec pays 42 % of its total revenue in income taxes and other different taxes. This translates into working nearly 5 months merely to cover annual income taxes and other taxes.

Although we have little or no power over tax rates, we do have ALL the power to decide on our consumption level. By reducing our consumption, we then also reduce the taxes we pay. Of course, we cannot do without essentials, but we certainly can return to basics.

Status quo is no longer an option

Group insurance plans, in their current design, could be redefined to provide insurance, that is, coverage for important financial losses that could not be entirely assumed by the insured. Current group insurance plans provide reimbursements for medical and/or dental expenses with annual limits.

The reimbursement portion of group insurance plans accounts for nearly 70 % of total cost while true insurance protection is the remaining 30 %.

Coverages with annual limits are not insurance in the true sense of the word since the loss is limited. They are reimbursement plans with premiums based on the level of claims filed by the insureds. Furthermore, many of those services, covered under group health or dental benefits, are delivered without taxes applied while premium charged for the benefit is taxable (ex: service fees charged by dentists, pharmacists, for eye exams and eyeglasses, etc. are not subject to taxes)

It is time to revisit how we design our group insurance plans. It is possible to generate savings that could be used towards retirement funds with the added benefit of reducing the taxes we pay.

It is time to act

The economic viability of our group insurance plans depends on our capacity to pay. Costs related to employee benefits are an important item for the employer. We must also consider that, as a whole, the working or active population is aging. It is time to change our model and offer benefit plans that will meet the needs of a population edging towards retirement.

Your HUB International advisor, specialist in group benefits, is devoted to assist you in establishing your group insurance and retirement plans.

See the Benefit Taxation Guide 2021