2016 Federal Budget Includes Changes to EI and OAS/GIS Eligibility

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1 March 22, Federal Budget Includes Changes to EI and OAS/GIS Eligibility T he 2016 Federal Budget, Growing the Middle Class (Budget) was tabled by Finance Minister Bill Morneau on March 22, The Budget s primary focus was on economic stimulus and initiatives aimed at Canada s middle class, including the introduction of a new Canada Child Benefit and a middle-class tax break. Announcements of interest to employers and benefit plan sponsors include: Returning the eligibility age for Old Age Security (OAS) and Guaranteed Income Supplement (GIS) benefits to age 65 and enhancing the GIS top-up benefit for single seniors; Providing an update on Canada Pension Plan (CPP) reform; Making a promise to hold consultations on changes to the 30% pension investment rule, and changes to the federal government s ability to enter into agreements with provinces under the Pension Benefits Standards Act (PBSA); Changing the waiting period for Employment Insurance (EI) benefits; and The addition of a number of medical and assistive devices to the list of zero-rated supplies for GST/HST purposes, and clarification of the GST/HST treatment of cosmetic procedures. This Special Notice provides a summary of these and other Budget measures, and information on the impact these measures may have on employers and plan sponsors. 1 A MEMBER OF ABELICA GLOBAL

2 Changes to OAS and GIS benefits As was widely expected, the Budget cancels planned increases to the age of eligibility for OAS and GIS, which had been announced in the previous government s 2012 Federal Budget. The 2012 Budget measures would have amended the Old Age Security Act (OAS Act) to gradually increase the age of eligibility for OAS and GIS benefits from 65 to 67, and for Allowance benefits from 60 to 62, between 2023 and The Budget also increases the GIS top-up benefit for single, low-income seniors starting in July This top-up is provided to seniors who rely almost exclusively on OAS and GIS benefits for retirement income. Following the change, single seniors with annual income (excluding OAS and GIS benefits) of $4,600 or less will receive the full increase, $947 annually. The top-up benefit will decrease for seniors whose income is above this threshold, and will not be available to anyone whose income is $8,400 or above. Benefits will be adjusted quarterly with increases in the cost of living. The age of eligibility for OAS and GIS has been restored to age 65. Finally, the Budget provides assistance to senior couples who live apart for reasons beyond their control (for example, where one person resides in a long-term care home). The OAS Act will be amended to provide these couples with GIS and Allowance benefits based on their individual incomes, rather than their combined income. This will result in higher benefit payments for eligible seniors. Similar rules already apply to couples who both receive GIS benefits, but not Allowance benefits, and who live separately for reasons beyond their control. Eckler s view: The cancellation of the proposed changes to OAS eligibility age may affect some pension plans that are integrated with OAS, including those with a notched or level income option that incorporates OAS in the calculation of the bridging benefit. In addition, plan sponsors that provide disability benefits beyond age 65 no longer need to worry about increased claims costs flowing from the elimination of the potential all source offset to disability payments from age 65 to age FEDERAL BUDGET INCLUDES CHANGES TO EI AND OAS/GIS ELIGIBILITY

3 Update on CPP reform The federal government intends to continue discussions with the provincial and territorial governments, with an aim to reach a collective decision on possible CPP enhancements by the end of In addition, the Budget states that public consultations will be launched in the coming months to solicit feedback on possible CPP changes. Eckler s view: Employers in Ontario will be particularly interested in the outcome of CPP reform discussions, given their potential impact on the future of the Ontario Retirement Pension Plan (ORPP), scheduled to start rolling out on January 1, For the latest ORPP developments, please see Eckler s February 26, 2016 Special Notice, 2016 Ontario Budget: Progress on Pensions and Changes to the ODB. Pension investment regulations and engagement on infrastructure The Budget states that the government will consult with stakeholders on the usefulness of the pension investment rule that currently prevents plans from holding more than 30% of the voting shares of a company. The consultation, which the Budget indicates will begin shortly, will consider whether changes to the 30% rule are needed to provide pension plans with more flexibility to seek out investment opportunities, while still protecting members retirement savings. The government also intends to broaden the scope of its ability to enter into agreements with provincial governments under the PBSA. This change is designed to make it easier for the federal and provincial governments to collaborate on the oversight of certain pension plans. Finally, the Budget states that the government may engage public pension plans and other innovative sources of funding to increase the long-term sustainability and affordability of Canadian infrastructure. Eckler s view: Arguments in favour of eliminating the 30% rule have generally reasoned that investment performance would be enhanced if plans had the ability to hold more than 30% of the voting shares in specific companies. In all likelihood, only the largest pension plans would have the requisite investment expertise to take advantage of this greater latitude FEDERAL BUDGET INCLUDES CHANGES TO EI AND OAS/GIS ELIGIBILITY

4 Changes to EI The Budget states that the waiting period for EI benefits will be reduced from two weeks to one week, starting January 1, The Budget also outlines plans to further improve EI, by making it easier for those caring for seriously ill family members to access compassionate care benefits, and by adding flexibility to parental leave benefits to better accommodate unique family and work situations. Eckler s view: The Budget does not specify whether the changes include benefits for both unemployment and sickness. It also does not specify whether the maximum payment period is being extended by one week. We assume that the changes do include sickness benefits, and that, due to the financial implications, an extension to the maximum payment period is not being considered. On this basis, the impact of these changes on plan sponsors is expected to be as follows: Reduction to EI waiting period to one week: EI Sickness payment period: Impact to Group Plan Sponsors Must reduce the short-term disability (STD) waiting period in order to preserve any EI premium reduction. This may increase the number and amount of STD claims. Without an increase to the maximum benefit payment period, plan sponsors who integrate the expiry of EI benefits or EI-equivalent STD benefits with their privately sponsored long-term disability (LTD) programs will need to reduce the waiting period for LTD benefits. This will increase LTD plan costs. Medical and assistive devices and cosmetic procedures Medical and assistive devices that are designed specifically to help individuals with chronic diseases/illnesses or physical disabilities are generally zero-rated for GST/HST purposes. That is, they are technically taxable, but the tax rate applied to them is zero. The Budget proposes to add insulin pens, insulin pen needles and intermittent urinary catheters to the list of zero-rated devices FEDERAL BUDGET INCLUDES CHANGES TO EI AND OAS/GIS ELIGIBILITY

5 This change will apply to insulin supplies made after March 22, 2016, as well as to supplies made on or before March 22, 2016, unless the supplier charged, collected or remitted GST/HST on the supply. The change will apply to intermittent urinary catheter supplies made after March 22, 2016, only if supplied on the written order of a doctor, registered nurse, occupational therapist or physiotherapist. The Budget also clarifies that GST/HST will continue to apply to purely cosmetic procedures provided by all suppliers, including registered charities. However, cosmetic procedures required for medical or reconstructive purposes will continue to be tax-exempt, as will procedures paid for by a provincial health insurance plan. Eckler s view: Plan sponsors can expect to see a minor reduction to benefit costs related to eligible insulin pens, insulin pen needles and intermittent urinary catheters, as well as any cosmetic procedures required for medical or reconstructive purposes that are not currently paid for by the provincial plans. Other measures The Budget also includes the following notable announcements: Eliminating income splitting for families with children: Parents of children under age 18 will no longer be able to split income, starting in the 2016 tax year. This change does not apply to pension income splitting. Bargaining with the federal public sector: The government is committed to negotiating in good faith with unions representing federal government employees, and has already repealed legislation allowing it to make unilateral changes to the public service s disability and sick leave system. The government will also consult on changes to the Public Service Labour Relations Act introduced by the 2013 Federal Budget. This Special Notice has been prepared for general information purposes only and does not constitute professional advice. Should you require professional advice based on the contents of this Notice, please contact an Eckler consultant. 5 Copyright 2016 Eckler Ltd. All rights reserved. Eckler Ltd. Tel: Connect with us: 110 Sheppard Ave. E., Suite 900 Fax: Toronto, ON M2N 7A3, Canada eckler.ca FEDERAL BUDGET INCLUDES CHANGES TO EI AND OAS/GIS ELIGIBILITY