Are Group Benefits Taxable in Canada?

Group benefits taxation questions generally relate to the following 1) whether employer paid premiums are tax deductible for the employer; 2) whether the premium is taxable to the employee if the employer pays the premium; and 3) whether benefit payments are taxable when an employee makes a claim.

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group benefits

Group Benefits Taxation Quick Reference Sheet

Now we will go into more detail regarding common group benefits taxation.

Basic Group Life Insurance:

  • Are Employer Paid Group Benefit Plan Premiums Tax Deductible for the Employer?

    • Yes
  • Is the Premium Taxable to the Employee If the Employer Pays the Premium?

    • Yes
      • Employer contributions for group life insurance are considered a taxable benefit to the employee. To account for this, the applicable employer paid premiums need to be added to the employee’s income through payroll deductions, or as a lump sum amount, on each employee’s T4 at the end of the year.
  • Are Group Benefit Payments (Benefits Received) Taxable to the Employee?

    • No

Basic Group Dependent Life Insurance:

  • Are Employer Paid Group Benefit Plan Premiums Tax Deductible for the Employer?

    • Yes
  • Is the Premium Taxable to the Employee If the Employer Pays the Premium?

    • Yes
      • Employer contributions for group dependent life insurance are considered a taxable benefit to the employee. To account for this, the applicable employer paid premiums need to be added to the employee’s income through payroll deductions, or as a lump sum amount, on each employee’s T4 at the end of the year.
  • Are Group Benefit Payments (Benefits Received) Taxable to the Employee?

    • No

Group Accidental Death and Dismemberment:

  • Are Employer Paid Group Benefit Plan Premiums Tax Deductible for the Employer?

    • Yes
  • Is the Premium Taxable to the Employee If the Employer Pays the Premium?

    • Yes
      • Employer contributions for accidental death and dismemberment are considered a taxable benefit to the employee. To account for this, the applicable employer paid premiums need to be added to the employee’s income through payroll deductions, or as a lump sum amount, on each employee’s T4 at the end of the year.
  • Are Group Benefit Payments (Benefits Received) Taxable to the Employee?

    • No

Group Wage-Loss Replacement Plans – Short Term Disability Benefits:

  • Are Employer Paid Group Benefit Plan Premiums Tax Deductible for the Employer?

    • Yes
  • Is the Premium Taxable to the Employee If the Employer Pays the Premium?

    • No
  • Are Group Benefit Payments (Benefits Received) Taxable to the Employee?

    • Yes/No**

** Disability benefit payments are taxable to the employee if any part of the short-term disability insurance premium is paid by the employer and are non-taxable if the entire disability insurance premium is paid by the employee. Alternatively, if group disability insurance premium costs are shared between the employer and employee, then the employee is entitled to receive benefits equal to their own contributions on non-taxable basis.

Typically, employers set-up their company’s group benefit plan with employees paying 100% of the group disability insurance premiums. This ensures that employees receive non-taxable benefit payments in the future. Canada Revenue Agency (“CRA”) will look at different factors when considering whether a disability benefit plan is non-taxable. To be eligible as a non-taxable plan, there must be a legal obligation for the employees to pay the full premium and this must be happening in practice. Your group disability insurance plan will be designed around a non-taxable or taxable benefit structure, which will address the legal obligation when set-up appropriately. To demonstrate that this is happening in practice, employers must show that the disability insurance premium is accounted for through payroll deductions and records. An employer can change the tax status of their disability plan but it can only be done on a moving forward basis. This means that employers cannot retroactively change the tax status of the group disability insurance plan. Furthermore, the obligation for the employees to pay 100% of the group disability insurance premium must be in place when the actual premiums are paid for the plan to be deemed non-taxable.

Group Wage-Loss Replacement Plans – Long Term Disability Benefits:

  • Are Employer Paid Group Benefit Plan Premiums Tax Deductible for the Employer?

    • Yes
  • Is the Premium Taxable to the Employee If the Employer Pays the Premium?

    • No
  • Are Group Benefit Payments (Benefits Received) Taxable to the Employee?

    • Yes/No**

** Disability benefit payments are taxable to the employee if any part of the long-term disability insurance premium is paid by the employer and are non-taxable if the entire disability insurance premium is paid by the employee. Alternatively, if group disability insurance premium costs are shared between the employer and employee, then the employee is entitled to receive benefits equal to their own contributions on non-taxable basis.

Typically, employers set-up their company’s group benefit plan with employees paying 100% of the group disability insurance premiums. This ensures that employees receive non-taxable benefit payments in the future. Canada Revenue Agency (“CRA”) will look at different factors when considering whether a disability benefit plan is non-taxable. To be eligible as a non-taxable plan, there must be a legal obligation for the employees to pay the full premium and this must be happening in practice. Your group disability insurance plan will be designed around a non-taxable or taxable benefit structure, which will address the legal obligation when set-up appropriately. To demonstrate that this is happening in practice, employers must show that the disability insurance premium is accounted for through payroll deductions and records. An employer can change the tax status of their disability plan but it can only be done on a moving forward basis. This means that employers cannot retroactively change the tax status of the group disability insurance plan. Furthermore, the obligation for the employees to pay 100% of the group disability insurance premium must be in place when the actual premiums are paid for the plan to be deemed non-taxable.

Group Extended Health Care Benefits:

  • Are Employer Paid Group Benefit Plan Premiums Tax Deductible for the Employer?

    • Yes
  • Is the Premium Taxable to the Employee If the Employer Pays the Premium?

    • No**

** Taxable in the Province of Quebec.

  • Are Group Benefit Payments (Benefits Received) Taxable to the Employee?

    • No

Group Dental Benefits:

  • Are Employer Paid Group Benefit Plan Premiums Tax Deductible for the Employer?

    • Yes
  • Is the Premium Taxable to the Employee If the Employer Pays the Premium?

    • No**

** Taxable in the Province of Quebec.

  • Are Group Benefit Payments (Benefits Received) Taxable to the Employee?

    • No

Group Critical Illness Benefits:

  • Are Employer Paid Group Benefit Plan Premiums Tax Deductible for the Employer?

    • Yes

  • Is the Premium Taxable to the Employee If the Employer Pays the Premium?

    • Yes
      • Employer contributions for group critical illness insurance are considered a taxable benefit to the employee. To account for this, the applicable employer paid premiums need to be added to the employee’s income through payroll deductions, or as a lump sum amount, on each employee’s T4 at the end of the year.
  • Are Group Benefit Payments (Benefits Received) Taxable to the Employee?

    • No

Employee Assistance Program (“EAP”):

  • Are Employer Paid Group Benefit Plan Premiums Tax Deductible for the Employer?

    • Yes
  • Is the Premium Taxable to the Employee If the Employer Pays the Premium?

    • No
  • Are Group Benefit Payments (Benefits Received) Taxable to the Employee?

    • No

Health Care Spending Accounts:

  • Are Employer Paid Group Benefit Plan Premiums Tax Deductible for the Employer?

    • Yes
  • Is the Premium Taxable to the Employee If the Employer Pays the Premium?

    • No
  • Are Group Benefit Payments (Benefits Received) Taxable to the Employee?

    • No**

** Taxable in the Province of Quebec to the plan member (employee) for Provincial income tax purposes, based on the actual amount claimed, plus the applicable expenses and retail sales tax therein.

Wellness Spending Accounts (Taxable Spending Accounts):

As this type of account does not qualify as a Private Health Services Plan (“PHSP”), any benefit received is taxable to the plan member (employee). The Plan Sponsor (employer), cannot deduct its contributions to the Taxable Spending Account until benefits are paid to the plan member (employee). Taxable Spending Account paid claims are added to the employee’s taxable income for the plan year. The Plan Sponsor (employer) is accountable and responsible for the T4 tax reporting requirements.

It is always wise, and highly recommended, that you consult a tax professional for any tax related advice specific to your own needs.

2 Comments

  • Christopher Tanner, GBA Posted February 22, 2018 4:19 PM

    Thank you for your kind words. Glad the information was of help to you.

  • Melissa Posted February 22, 2018 3:03 PM

    Just want to say this information is fantastic, I’ve been looking for clear answers like this for a while! Very easy to understand

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