Taxable Employee Benefits: How Group Insurance is Taxed

Are group benefits taxable in Canada? Taxation is a complex and ever-changing landscape, which is why it’s always best to consult with your company’s tax, legal, and accounting advisors when you want to be clear about taxable employee benefits. Before we discuss, for informational purposes only, whether employee benefits are taxable, let’s look at how the Canada Revenue Agency (CRA) defines ‘benefit.’ 

“Your employee has received a benefit if you pay for or give something that is personal in nature: 

  • Directly to your employee
  • To a person who does not deal at arm’s length with the employee (such as the employee’s spouse, child, or sibling).”

What Are Taxable Benefits in Group Insurance?

What is a taxable benefit, and is group life insurance taxable? A taxable benefit is a service or goods provided by the employer to employees as part of their remuneration package. Although the staff member does not pay for the good or service, the value must be added to the taxable salary. Why? Because the government considers the benefit given by the employer as another form of remuneration, and income tax must be paid on the amount.     

If the employer pays a portion of the group insurance plan costs, it is deemed a taxable benefit in group insurance. When an employee pays the full premium, the benefit is not taxable.   

The government does not consider some insurance coverage premiums as taxable, so determining what is taxable in group insurance can be complicated.

When Are Insurance Premiums Tax Deductible?

When are insurance premiums tax deductible? As with many tax-related questions, the answer is unclear and depends on whether your situation is an exception. Generally, disability, life, and health insurance premiums are not tax deductible for personnel, but a tax professional will look at all factors before providing guidance.      

Group term life insurance. When a business pays the employee premiums, they are tax deductible for the employer if they are deemed a reasonable business expense. In this instance, the premium is seen as taxable income for employees.  

Group health insurance. As long as the premiums for group health insurance are paid by the employer and are reasonable business expenses, they are tax deductible for the company. Employer-paid, income-style long-term care insurance (LTCI) and critical illness insurance premiums are taxable employee benefits. Personal health insurance, disability insurance, and reimbursement-style LTCI premiums paid by the employer are non-taxable employee benefits. 

What Group Benefits Are Taxable In Canada?

What type of group benefits are you offering your employees? Are you offering life insurance, medical insurance, disability insurance, and retirement benefits? Which ones are taxable? Employer-paid premiums for critical illness insurance, accident insurance, and group life insurance are taxable benefits, and employees must pay income tax on the amount, whether on a provincial or federal level.

There is good news Short and long-term disability insurance is not a taxable benefit at the provincial or federal level, even if the coverage is paid by the employer. 

Are health benefits taxable in Canada? Premiums paid by an employer for group health insurance are considered a business expense and are, therefore, not taxable. What about the retirement group benefits? All contributions to an employee’s registered retirement savings plan (RRSP) are taxable, but an employer contribution to a pension plan or deferred profit sharing plan (DPSP) is not a taxable benefit for employees.

Need Help? NIS and NPW Are Here  

Although Nour Insurance Services (NIS) is a related and separate company from Nour Private Wealth (NPW), we combine our expertise to give clients what they need. Many Canadian employers have confidence in NIS to deliver employee benefit programs that are current and competitively priced. Business owners trust the tax planning services offered by the wealth management experts at NPW. Trust us when you need help.  

Nour Private Wealth (NPW) is a Canadian company with a team of wealth advisors servicing clients across seven provinces. We are a member of the Investment Industry Regulatory Organization of Canada (IIROC), a self-regulatory organization. Contact NPW when you want further clarification on the group benefits that are taxable in Canada.    

Nour Private Wealth Inc. does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction.

Insurance products and services are offered through Nour Insurance Services Inc., a related and separate company from Nour Private Wealth Inc. Only products and services offered through Nour Private Wealth Inc. are covered by the Canadian Investor Protection Fund.

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