Key proposed amendments
Employee life and health trust plans
The proposed amendment clarifies that group sickness or accident insurance plans administered by employee life and health trusts (ELHTs) retain their character as such plans. Essentially, delivering these benefits through an ELHT does not alter the nature and tax character of the plan—meaning the employer contributions remain subject to the same tax treatment.
The ELHT rules would also be amended to broaden eligible beneficiaries, allowing anyone to receive life insurance and death benefit payouts. This amendment aligns ELHT provisions with the concept of designated employee benefits.
Further refinements were also made to the 25 per cent beneficiary class requirement, adjusting how the 75 per cent test is applied and extending exclusions to non-employees and family members.
These amendments aim to prevent reference classes from being structured in a way that allows shareholder employees and their families to receive disproportionately generous benefits.
What this could mean: These changes provide greater clarity and flexibility for GES tax practitioners and employers.
The technical clarification reduces uncertainty that could have led to double taxation or inconsistent reporting when ELHTs are used to administer plans.
The broadened beneficiary rules could allow organizations to design more inclusive benefit structures while still maintaining tax compliance, but they also introduce a need for careful monitoring to ensure the 75 per cent test is met under the new framework.
Payroll and human resources teams should update policies and systems to reflect the expanded scope of eligible beneficiaries, and must continue to correctly classify and report employer contributions.
Registered retirement savings plans (RRSPs)
The draft legislation updates definitions related to RRSPs to accommodate accounts held by unclaimed property authorities—entities designated to hold the assets of missing individuals—effective Jan. 1, 2026.
Amounts transferred from RRSPs to such authorities will not be considered as a taxable benefit.
The proposed changes would also clarify that rollover treatment on death does not apply to RRSPs held by an unclaimed property authority—unless transferred under new relief provisions.
What this could mean: Employers and GES tax advisors managing retirement benefits would face a new layer of complexity if these amendments to the subsection 146 definitions are enacted.
Employers must be mindful that RRSPs managed by unclaimed property authorities have distinct tax rules, particularly in estate and survivors’ contexts. Payroll and benefits systems must be updated to correctly reflect these transfers to prevent errors in reporting or withholding.
Registered retirement income funds (RRIFs)
Similar to the RRSP changes, the draft legislation revises definitions for RRIFs to reflect accounts administered by unclaimed property authorities effective Jan. 1, 2026.
In these cases, the authority or its agent may be treated as the carrier of the RRIF. Payments to survivors from such RRIFs will not qualify as designated benefits, limiting rollover opportunities.
What this could mean: These changes could have significant estate planning and compliance consequences.
Survivor beneficiaries could face immediate income inclusion rather than benefiting from a tax-deferred rollover, which can increase the overall tax burden.
Employers and GES advisors should review existing policies and communications to ensure beneficiaries clearly understand these new limitations. Advisors may also need to explore alternative planning strategies—such as life insurance or other tax-efficient vehicles—to mitigate the loss of rollover treatment.
Tax withholding on transfers
Transfers from registered pension plans (RPPs), RRSPs, and RRIFs to unclaimed property authorities will no longer require tax withholding at the time of transfer.
Instead, withholding applies when the funds are ultimately paid to the claimant—unless tax-deferred—and would apply to amounts paid after 2025.
What this could mean: Employers would benefit from simplified administration when transferring funds to unclaimed property authorities.
However, they must ensure that payroll systems and reporting procedures are updated to reflect that withholding occurs only upon payout to the ultimate beneficiary.
Worker co-operative capital gains exemption
The draft legislation introduces a new capital gains deduction for individuals who dispose of shares of a corporation as part of a qualifying co-operative conversion to a worker co-operative, subject to certain conditions.
A qualifying cooperative conversion is defined as a transaction in which a taxpayer sells shares of a subject corporation to a purchaser corporation that is a worker cooperative. The deduction is subject to a shared lifetime cap of $10 million, which can be divided among multiple eligible individuals.
The legislation also proposes a formula-based methodology for calculating an individual’s entitlement to the deduction in situations where multiple sellers are involved.
What this could mean: If enacted, this could offer a significant new succession planning tool by encouraging employee ownership through worker co-operatives while offering sellers meaningful capital gains relief.
For employers, the provision could provide a structured path to transition ownership to employees in a tax-efficient manner, which would support business continuity, employee retention and long-term sustainability.
Other amendments
Transfer of superannuation benefits: An amendment to the pension transfer rules expands the special deduction available when taxpayers transfer lump-sum amounts from certain non-registered pension plans into a RPP, RRSP, or RRIF.
In addition to the traditional deduction, the amendment would allow the deduction for transfers from certain foreign plans where services were performed in Canada—provided the plan reported pension adjustments for those years. This change is effective Jan. 1, 2024.
Foreign retirement arrangement: This arrangement, defined in Income Tax Regulations section 6803, is relevant to several definitions and sections of the Income Tax Act—including paragraph 56(1)(a) under which amounts received in respect of a foreign retirement arrangement are included in income.
As part of the proposed legislation, section 6803 would be amended to add subsection 401(k) plans described in U.S. Internal Revenue Code of 1986 to the list of prescribed plan or arrangements.
