Multi-Employer Benefit Plan Council of Canada
January 27, 2026
Hon. Peter Bethlenfalvy, Minister of Finance
Ministry of Finance
Frost Building South
7th Floor
7 Queen's Park Cres.
Toronto, ON M7A 1Y7
Via email: Minister.fin@ontario.ca
Dear Mr. Bethlenfalvy:
We are writing to submit our comments and recommendations with respect to the 2026 Pre Budget Consultations. Our submissions concern the imposition of insurance premium tax ("Premium Tax") on group benefit funds under subsection 2(2.1) and section 74.2 of the Corporations Tax Act (Ontario) ("CTA").
About MEBCO
The Multi-Employer Benefit Plan Council of Canada (MEBCO) was established in 1992 to represent the interests of Canadian multi-employer pension and benefit plans (MEPs). MEBCO consults with provincial and federal governments regarding proposed or existing legislation and policies affecting these plans. MEBCO is a federal non-share capital corporation, operating on a not-for-profit basis.
MEBCO respectfully submits:
Insurance premium taxes are a targeted tax that were historically intended to raise revenue from for-profit insurance companies. The CTA imposes Premium Tax on insurance companies under section 74.
The rules imposing Premium Tax on group benefit funds—subsection 2(2.1) and section 74.2— were introduced in 1996. Technically, the rules impose a "tax in respect of a benefit plan". The term "benefit plan" is defined to mean "a plan, fund or arrangement which gives protection against risk to an individual that could otherwise be obtained by taking out a contract of insurance". In this regard, it appears that the intent is to impose tax on plans, funds or arrangements on the basis that they are akin to insurance contracts. In MEBCO's view, this is fundamentally misguided.
While there are similarities between the benefits provided by some group benefit funds and some group insurance contracts, the group benefit funds affiliated with MEBCO are nothing like insurance companies.
Insurance companies are for-profit enterprises. The group benefit funds we represent are trust arrangements that provide health and welfare benefits on a non-profit basis, generally governed by a volunteer Board of Trustees. The benefits include vision care, dental care, extended health coverage, and short-term and long-term disability coverage.
Further, the funds are generally funded solely by collectively bargained employer and employee contributions, calculated based on hours worked by plan members. Given this, by imposing Premium Tax on such funds, the Province is treating part of the wage package of hard-working Ontarians—contributions to group benefit funds—as if they were insurance premiums charged by an insurance corporation. It is very hard to see any policy justification for this.
Based on all the foregoing, MEBCO strongly encourages the Government to exempt group benefit funds from Premium Tax moving forward. This can be easily achieved by repealing subsection 2(2.1) and section 74.2 from the CTA.
In the alternative, if the Government elects not to exempt group benefit funds from Premium Tax, the CTA should be amended such that all group benefit funds are taxed as "unfunded benefit plans".
By way of background, since its introduction, section 74.2 has applied Premium Tax to group benefit funds differently depending on whether the fund has a significant enough reserve to cover the cost of benefits payable within 30 days. If so, the fund is considered a "funded benefit plan" and Premium Tax is applied to contributions as the time the contributions are made to the fund. If not, the fund is considered an "unfunded benefit plan" and Premium Tax is applied to the cost of benefits when they are paid from the fund.
Additionally, a third category was introduced effective December 1, 2010: the qualifying trust. Under the applicable rules, a "qualifying trust" is a trust that qualifies as an employee life and health trust under the Income Tax Act (Canada), but only if the trust was established on or after December 1, 2010. One distinction between qualifying trusts and other group benefits plans is that Premium Tax that would have been imposed on contributing employers is, instead, imposed on the trust itself. More importantly, if the qualifying trust is a funded benefit plan with a large enough reserve to cover the cost of benefits foreseeable and payable within three (3) years, the rules allow the qualifying trust to elect to be taxed as an unfunded plan instead of funded plan.
MEBCO's position is that these overlapping rules are unnecessarily complicated and are based on unhelpful and arbitrary distinctions. If section 74.2 is retained, it should be amended to simplify this component of the regime and treat all benefit plans equitably.
Further, in that case, all group benefit plans should be taxed as unfunded benefit plans as the rules applicable to unfunded plans are substantially easier to administer.
For example, consider the Premium Tax carve outs relating to benefits that are taxable under the Income Tax Act. As noted above, for unfunded benefit plans, Premium Tax is applied to benefits at the time they are paid. This is subject to a carveout excluding benefits that are included in members' taxable income for federal income tax purposes. In this case, the carveout can be straightforwardly calculated based on an assessment of the types of benefit payments made at the time they are made.
In contrast, for funded benefit plans, Premium Tax is applied to contributions at the time they are received. This is subject to a carve out excluding contributions that can "reasonably be considered" to fund benefits that would be included in members' taxable income for federal income tax purposes. In this case, the carveout requires devising some method for identifying the future use of contributions at the time they are received. This introduces unnecessary administrative difficulties. Further, it fails to recognize that the relative proportion of different benefits provided under a plan may change over time for a wide array of reasons, including changes to plan demographics, changes in drug costs, or plan design changes. These difficulties can be avoided by treating all group benefit funds as unfunded benefit plans and applying the Premium Tax on the payment of benefits.
In this regard, we note that the rules governing qualifying trusts already permit "funded" benefit plans to be treated as "unfunded", provided they were established after December 1, 2010 and have a reserve that would allow them to cover the cost of three (3) years of benefits. We submit that there is no principled basis for requiring that these criteria be met in order for a fund to be treated as unfunded.
We understand that there may be some concern that allowing all group benefit funds to be treated as unfunded will mean that amounts are able to accumulate untaxed. However, we would stress that the amounts contributed to the type group benefit funds that MEBCO represents must be directed to health and welfare benefits, meaning that if subsection 74.2 continues to tax benefits paid, the Province will ultimately collect tax in respect of all contributions to the funds.
As the Government is aware, the Ontario Ministry of Finance ("MOF") has been conducting targeted Premium Tax audits of group benefit funds. MEBCO strongly urges the Government to ensure that any and all penalties and interest that may be applied in respect of such audits are waived. This may be achieved by an amendment to the CTA and/or by MOF exercising its discretion under existing section 109. Penalties and interest should also be waived for group benefit funds who have made voluntary disclosures.
Our position on this issue relates to the fact that, since the introduction of subsection 2(2.1) and section 74.2 in 1996, the MOF did not take any of the steps necessary to educate the sector or enforce the tax regime. This can be contrasted with similar retail sales tax ("RST") rules imposed under the Retail Sales Tax Act (Ontario). Rules applying RST to contributions to group benefit funds were introduced in 1993 and, since that time, MOF has consistently publicized and enforced the RST regime through audit activity and other measures. As a result, group benefit funds are aware of their RST obligations.
Notwithstanding that the MOF was aware of and audited these benefit plans and received RST on plan contributions and RST returns, the MOF failed to publicise, educate or enforce the Premium Tax regime for many years after it was introduced which resulted in a climate where very few group benefit funds were aware of any direct obligations they may have under the regime. In fact, the largest insurance companies providing group insured benefits believed that they were solely obligated to pay premium tax in respect of all the group benefit plans covered under their policies. MEBCO submits that MOF's failure to enforce this particular tax has given rise to special circumstances under which it is clearly inequitable to demand payment of penalties and interest in respect of tax purportedly payable prior to the Ministry's recent audit activity.
We would be happy to discuss our comments on this matter further and invite you to contact us if you have any questions.
Yours truly,
Alex McKinnon. MEBCO President
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