Benefits Plan Taxation

Benefits are typically tax preferred, the government likes private insurance because it takes strain off of the public plans. Canada Revenue encourages businesses to provide benefits by making them cheaper thanks to tax writeoffs and exemptions.

I have a handy article I include in all my group renewals, which provides all the taxation info you might need for your benefits plan. Taxation of Benefits

		Employer paid premiums	Benefits received by Employee
Health Care		Tax Deductible	Non-Taxable
Dental Care		Tax Deductible	Non-Taxable
Critical Illness*		Tax Deductible	Non-Taxable
Life Insurance/ AD&D		Tax Deductible	Taxable
Short and Long Term Disability		Tax Deductible	Taxable

*Critical Illness is currently being treated as a "Health Care" benefit  Canada Revenue has not ruled on its official tax status and while we believe this tax treatment will be honored Canada Revenue could change their mind in the future.

Life Insurance and Disability Insurance benefits are considered Taxable by CRA, because they are paid as income. If an employer paid any portion (even 1 cent) of a disability premium, the benefit becomes taxable. For this reason we always recommend that the employee pay 100% of their Life and Disability premiums. This is usually fine if there is a 50/50 cost sharing arangment unless health and dental waivers are involved, see example C in the attached article. In that case you can add the required amount to an employees T4 as "extra income" and make the benefit non-taxable. 


In cases where benefits are 100% employer paid, we will increase the disability benefit to adjust for taxation. Usually this means increasing the benefit formula from 66.7% of pre-disability income to 75% of pre-disability income. The after tax benefit amount will be similar, however, this is a more expensive method as it involves higher insurance volumes therefore higher premiums. 



Taxation of Benefits 

E.O.&E.