Changes to capital gains, pharmacare and dental care clarified by Ottawa
With the 2024 federal budget released on April 16, there are a few considerations for employers in terms of total rewards and benefits offerings.
For one, stock options may see an impact because of changes to the Capital Gains Inclusion Rate, said Matthew Fisher, barrister and solicitor at Lecker & Associates.
The budget proposes to increase the rate from one-half to two-thirds for corporations and trusts, and from one-half to two-thirds on the portion of capital gains realized in the year that exceed $250,000 for individuals, for capital gains realized on or after June 25, 2024.
“Changes to the Capital Gains Inclusion Rate will only have an impact in specific circumstances, insofar as it's not the benefit itself — it will affect the long-term value of stock options, which could impact how employers make up compensation for employees,” Fisher said.
“This is going to be relevant to those who decide to hold on to those stock options, and I think it would largely be tech companies that are impacted more than others because they tend to have more valuable stock options.”
For Richard Johnson, co-founder and partner at Ascent Employment Law, this could “potentially chill business in Canada,” as the increase will affect people who are looking to own a business or invest in small businesses.
Budget 2024 impact on pensions
The budget also outlines potential vehicles for pensions in ways that haven’t always been possible, as the government is establishing an intention to work collaboratively with pension funds, Johnson said.
“The government essentially wants to open up the playing field for pensions, which could signal that they want less reliance on the Canadian Pension Plan, but I do think this is a positive move.”
Ottawa announced that the government, working with pension plans, will create a working group, designed to explore how to create greater domestic investment opportunities for Canadian pension funds. The group will identify investment opportunities for growing pension savings and "meet Canadian pension plans' fiduciary and actuarial responsibility, spur innovation, and drive economic growth."
The group will focus its efforts on areas including digital infrastructure and AI investment, physical infrastructure, airport facilities, venture capital investments, building more homes, including on public lands and the removal of the 30 per cent rule for domestic investments, according to the budget.
If the government can open opportunities for collaboration, it may give companies other options for offering pensions internally to their employees, instead of just providing an RRSP and a CPP contribution, he said.
However, while these changes may be on the horizon, Johnson doesn’t believe the pension scheme will change rapidly. Some employers should be aware of the landscape and turn their minds to how they can take advantage of new offerings for pension arrangements.
“It’s great to have a pension plan as part of your overall package but given that people don't generally stay at the same position for 30 years like they used to, it doesn't carry the same cachet and won't necessarily be an employee’s retirement plan, he said.
“So, I think there should be other avenues you pursue independently in addition to a pension and that this budget telegraphs that the government is looking for more ways to relax the landscape, have other pension opportunities and maybe take some pressure off the public system.”
Pharmacare, dental care updates in Budget 2024
As for the National Pharmacare Plan and Canadian Dental Care Plan, these could reduce costs or reduce an increase in premium costs for some employers, according to Stuart Rudner, employment lawyer at Rudner Law.
“Publicly funded dental care as well as publicly funded medication and drug plans are potentially the two most significant changes. Because most employers provide benefit plans that expand upon drug coverage and dental care, if those things are now going to be publicly funded, it might actually reduce the offerings that some employers have to provide,” he said.
If employers were to reduce their benefit offerings to have those covered under pharmacare and the dental plan, unionized workplaces may try to negotiate improvements or benefits elsewhere if that money is no longer going into a healthcare package, Rudner said.
In non-unionized environments, a lot of employers may take advantage of the savings when it is time to renegotiate benefit plans, he said.
“More publicly funded dental care and drug coverage may cause benefits plans to adjust, but adjustments are always happening, as sometimes employers will change the amount of coverage to ensure their premium increases aren’t too dramatic. So, I don’t think this will be a dramatic change from other years; it’s just part of the ongoing evolution of coverage.”
Reducing benefit plans and constructive dismissal
However, employers should be careful to avoid cases of constructive dismissal, Rudner said.
Changes to benefit plans are not often significant enough to prompt a constructive dismissal but if an employer were to abolish their healthcare plan in favour of pharmacare, resulting in a drastic decrease in coverage for certain employees, a constructive dismissal case could arise, he said.
“Especially when you talk about drug coverage, there can be a significant impact if an employee requires very expensive medication; for example, if the medication costs $200,000 a year, and you suddenly cut that off, that could certainly constitute a substantial change, and we have seen claims that have been brought or threatened on that basis, seeing it's a constructive dismissal.”
To avoid this, employers should be upfront in their contracts, outlining that the company reserves the right to amend or even cancel any coverage, Rudner said.
“As long as you have the right to make these changes contractually, then the risk of a constructive dismissal claim is far less.”
