Health and Welfare Trusts

A Health and Welfare Trust is a fund established exclusively for the purpose of health care spending. When creating a trust, it is important that the trust document is completed in compliance with Canada Revenue Agency’s rules. In the case of a Health and Welfare Trust, there is no prescribed format, however, there are some requirements.

These requirements are as follows:

 

1. The funds of the HWT cannot revert back to the employer or be used for any purpose other than providing the health and welfare benefits for which the contributions are made;

 

2. The employer’s contributions to the fund must not exceed the amounts required to provide the benefits;

 

3. The payment made by the employer cannot be made on a voluntary or gratuitous basis. In other words, once the payment plan is established it cannot change during the policy year. The contributions must be enforceable by trustees should the employer decide not to make the payments required;

 

4. The trust is a legal arrangement between the employer, a third-party acting as the administrator and an independent trustee. The expenses to be paid out of the trust must qualify as medical expenses as defined by CRA (specifically subsection 118.2(2) of the Act).

 

A corporation may provide benefits under a Health and Welfare Trust to an individual who is both an employee and a shareholder of the corporation. These benefits may be received for income tax purposes by the individual in his or her capacity as an employee or as a shareholder.