Update on the Federal Budget 2008

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On February 26, 2008, Finance Minister Jim Flaherty delivered his government's third budget. We have reviewed this budget and have taken the opportunity to summarize significant changes affecting Group Benefits plans.

Medical Expense Tax Credit (METC)
The budget proposes:

  • To clarify the wording of eligible drugs to “ensure that those that may be purchased without a prescription remain ineligible”.
    • You may have received communications suggesting that Private Health Services Plans (PHSPs) could no longer cover “over the counter” (OTC) medications, even when prescribed by a medical practitioner. However, the issue is not as straightforward as those communications would suggest. We have been working with the Canadian Life and Health Insurance Association. (CLHIA), along with other member companies to get clarity on the budget and its impact on drug plans. CLHIA wrote to and received confirmation from the Department of Finance that the budget does not affect private drug benefits plans. CLHIA learned that:
      • With respect to the OTC medications, the budget was not intended to change the existing treatment of PHSPs with respect to OTC medications, but rather to address the Medical Expense Tax Credit for personal income tax purposes.
      • As the interpretation of the scope of coverage available under a PHSP will be dependent on a plan’s facts and circumstances, future discussions concerning various aspects of a PHSP are always a possibility.
  • To expand the list of expenses an individual may claim for income tax purposes under the Medical Expense Tax Credit (METC) to include:
    • Altered auditory feedback devices for the treatment of a speech disorder;
    • Electrotherapy devices for the treatment of a medical condition or a severe mobility impairment;
    • Standing devices for standing therapy in the treatment of a severe mobility impairment;
    • Pressure pulse therapy devices for the treatment of a balance disorder;
    • Individuals who may claim expenses related to service animals has also been expanded to include those with severe autism or epilepsy.

Many Health Spending Account plans use the METC lists of services as a reference for covered expenses. Plan members with such plans will be able to claim for these additional expenses.

GST/HST tax treatment

Budget 2008 proposes improving the application of the GST/HST to a range of health care services, prescription drugs and medical devices so that it better reflects the evolving nature of the health sector. This will affect a small percentage of eligible health and dental claims where the billed amount includes GST/HST. This will result in reduced costs since GST/HST will no longer be applicable on the items identified in the budget. Since the GST doesn’t apply to most eligible medical and dental claims, however, the impact will be minimal.

Introduction of a Tax-Free Savings Account

Beginning in 2009, Canadians 18 or older will be able to make yearly contributions of up to $5,000 to a flexible, general-purpose savings account. While the contributions will not be tax deductible, there will be no tax payable on the investment income earned in the account, including dividends, interest and capital gains. We are investigating whether this can be incorporated into our product line.

In closing

We understand that you may have questions about the impact the budget may have on your drug plan.

With the response received from the Department of Finance, we will continue with our current adjudication practice related to the drug claims under your plan.

Please contact your Sun Life Financial group representative if you have any additional questions.