Two important tips you must know about Employee Benefits Taxation!

Are employer paid premiums taxable to the employee?

Employer paid premiums for any of the benefits listed below are considered a taxable benefit to the employee.

  • Life Insurance
  • Dependent Life Insurance
  • Accidental Death & Dismemberment
  • Critical Illness Insurance

To account for this taxable benefit, any premiums paid by the employer must be added to the employee’s income. This can be done by accounting for the premiums on each paycheck, or by adding a lump sum amount to each individual’s T4 at the end of the year. Plan administrators using their provider’s online administration website can typically access this information easily to determine these amounts.

Are claim payments a taxable benefit to employees?

Most group insurance benefits received by employees are not taxable in the hands of the employees, with the possible exception of disability benefits. Please be aware…

  • Disability Benefits received ARE NOT subject to income tax when the employee pays the entire disability premium.
  • Disability Benefits received ARE subject to income tax If the employer pays any portion of the disability premium. As required by Canada Revenue Agency, taxes are withheld from disability benefits paid to employees. Many employers make a point of setting up the company’s benefit program so employees pay 100% of the disability premium. This not only offsets the employer’s cost of running the program, it offers employees the advantage of non-­‐taxable disability benefits in the future.

In order for the disability benefits to be non-­‐taxable, Canada Revenue Agency (CRA) looks at two things – that there is a legal obligation for employees to pay the full premium, and second, that in actual practice the employee is paying the premium.

When you apply for coverage you would select either a taxable or non-­‐taxable disability plan, and benefits are calculated accordingly. This would address the legal obligation issue. To satisfy the practice issue, employers need to show the disability premium is being accounted for in the payroll records (i.e. payroll deductions).

Employers can change the tax status of their disability plans at any time, but only on a go forward basis. Employers cannot make retroactive changes to the tax status of a plan. The obligation for employees to pay 100% of the disability premiums must be in place when the premiums are paid in order for the plan to be deemed a non-­‐ taxable plan.

Your tax advisor or accountant can best guide you on how these rules may apply to your firm’s specific situation.

Facebook
Twitter
LinkedIn
Email

Related Posts

Networking Event at Vaughan Chambers

Thank you @official_addidas for hosting this mornings @vaughanchamber networking event! Amazing to see so many new faces while enjoying a coffee and some shopping of

Request a Quote

Please let us know what type of service you are interested in by completing the form below. We will be happy to send you a free quote.

Please fill each step and submit when done.

Enter your name

Enter your company name

Enter your email

Enter in your the postal code

Enter your telephone number(Optional)

Enter your the city(Optional)

Enter in the type of product(Optional)

Enter the total amount of employees(Optional)

Enter any additional information here(Optional)

Request a Call

Simply leave us your name and number and we’ll get in touch with you soon.

Thank you for your submission, you'll hear from us within 24 hours.