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March 2019

Federal budget 2019: Several impacts on total rewards

The federal budget unveiled on March 19, 2019, affects many components of total rewards. Our specialists have identified the most relevant elements.

NATIONAL PHARMACARE

The Government of Canada, concerned about the growing burden of prescription drug costs on Canadians, has set itself two key challenges: lowering drug costs and ensuring access to affordable medicine.

  • In line with the findings of the Advisory Council on the Implementation of National Pharmacare’s interim report (read our analysis), the government proposes the creation of the Canadian Drug Agency, which would be responsible for:
    • assessing effectiveness and negotiating prescription drug costs;
    • recommending a list of prescription drugs to develop a national formulary.
  • $35 million would be invested over four years to develop the Agency;
  • The government also proposes a multi-pronged national strategy to improve access to high-cost drugs for the treatment of rare diseases. Starting in 2022–2023, the government would invest $1 billion over two years, and $500 million per year thereafter, to help with measures to be defined.

The Advisory Council’s final report, which is expected shortly, will definitely influence the implementation of this project. For more information on Normandin Beaudry’s position on this matter, read our White Paper.

SAVINGS AND RETIREMENT

The federal government’s budget introduces various measures that will affect the savings and retirement of Canadians. Many of these measures are sure to please the various groups covered by these announcements:

  • Increase of the Guaranteed Income Supplement (GIS) earnings exemption from $3,500 to $5,000, as well as a partial exemption of 50% of earnings between $5,000 and $15,000;
  • Increase of the Home Buyers’ Plan (HBP) withdrawal limit from $25,000 to $35,000;
  • Greater retirement security through:
    • changes to corporate law to ensure better oversight;
    • new measures to make corporate insolvency proceedings more equitable and transparent.

Other innovative measures will mitigate some savings plan risks, such as longevity. The budget proposes modifying tax rules to permit two new types of annuities:

  • life deferred annuities up to age 85, purchased through an insurance company;
  • variable payment life annuities, paid directly from defined contribution plans.

The complexity of the legislative framework required for introducing these two new measures—which will also require the cooperation of the provinces—means that it may take some time before these new savings plan solutions are available. Nevertheless, these measures will likely have a significant impact on savings and retirement planning strategies.

EMPLOYEE STOCK OPTIONS

The Government of Canada intends to limit the tax benefits of employee stock options for high-income employees of long-established and mature firms. It will move toward aligning Canada’s employee stock option tax treatment with that of the United States by applying a $200,000 annual cap on employee stock options subject to a preferential tax treatment.

STUDENT WORK PLACEMENT PROGRAM

The Government of Canada intends to expand the Student Work Placement Program to give students in fields outside science, technology, engineering, and math (STEM) programs—such as humanities, social sciences and the arts—access to work-integrated learning opportunities.

LEAVE OF ABSENCE

Employers will need to adjust their absence management policies to reflect the following measures:

  • Immediate enhancement of shared parental leave benefits;
  • Creation, by late 2020, of a new employment insurance training benefit to provide income support to individuals taking time off for training.
MEDICAL CANNABIS

The Income Tax Act will be amended to reflect the current Access to Cannabis for Medical Purposes Regulations. While this change will not have a significant impact, it was necessary given the recent legalization of recreational cannabis.

We will be following up on the implementation of these various initiatives and keep you informed. If you have any questions, contact a Normandin Beaudry consultant.