taxation of group benefits
Below are some commonly-asked questions about the taxation of Group Benefits.
Is the cost for providing employee group benefits a tax deduction for the Business?
Yes. The premium cost paid by the business is deductible as a business expense if an employer provides an employee benefits plan and pays the premium on behalf of the employees.
is group insurance a taxable benefit to employees?
Certain benefits are deemed taxable income.
These benefits are:
-
Life Insurance
-
Dependent Life Insurance
-
Accidental Death & Dismemberment
-
Critical Illness Premiums
Are Long Term or Short Term Disability payments received by an employee taxable income?
Employer-paid short-term disability or long-term disability premiums are not taxable benefits. But any short- or long-term disability benefits you receive in the future from your employer will be taxable. Conversely, if all employees pay their own short or long-term disability premiums, any benefits they receive are tax-free. The same applies to premiums you pay for an individual policy you own. If you pay premiums yourself, using after-tax money, any benefits you receive are tax-free.
Are pension plans and Group Registered Retirement Savings Plan (RRSPs) taxable benefits?
Your employer's contributions to a registered pension plan on your behalf aren't taxable. So what happens when your employer contributes to or matches your group RRSP contributions? Then this amount is a taxable benefit that increases your employment income. However, assuming you have contribution room, you can use your employer’s RRSP contributions (and your own contributions), to offset the income inclusion.
What if you tell your employer you have RRSP contribution room? Then your employer may be able to reduce the income tax they're required to withhold from your pay, related to the RRSP contribution taxable benefit amount.
Be aware that your employer's contribution to your pension plan and/or RRSP reduces your RRSP contribution room for the following year. This is called a “pension adjustment” and it's reported on your T4. Of course, your earned income for this year increases your contributing room for the following year. Don’t worry about trying to figure out how much RRSP contributing room you have. The CRA informs you of your RRSP contribution room for the upcoming year. You’ll see this on your income tax Notice of Assessment that you receive every year after filing your tax return.