Regardless of the plan, the favourable taxation is the leading advantage for implementing a flexible employee group benefit:
· 100% corporate tax deduction
· Non-taxable to employees at the time of claim
However, for certain insurance lines, this requires premiums to be payroll deducted from the employee, which also offers the advantage of:
· Reducing their net taxable income
· Receiving reimbursement on claims non-taxable.
Even a bonus or salary increase can’t beat that as an incentive.
Consult your accountant on the details and the various aspects of payroll deductions and taxation.
Life Insurance, AD&D and Critical Illness Premiums
Premiums paid by the employer for group life insurance (including dependent life insurance), accidental death & disablement (AD&D) and critical illness (CI) are treated as a taxable benefit to employees but are paid out tax-free should a claim occur. Employers will include the taxable benefit in Box 14 “Employment Income” and in the “Other taxable allowances and benefits” area of the T4 slip as Box 40.
Short and Long Term Disability Premiums
If an employer is deemed to have contributed any amount to an employee’s disability plan (referred to by Canda Revenue Agency (CRA) as “wage loss replacement”), the disability benefit received at the point of claim will be deemed as taxable income. This can be costly to employees already in a financial hardship situation where they are unable to earn their living and have to depend on a reduce monthly stipend.
When 100% of premiums are paid by the employee (i.e. deducted from an employee’s gross income and remitted to the insurer), the disability claim will be deemed non-taxable income.
CRA will not accept a retroactive change to the tax status of the disability plan; the employer cannot add the equivalent of the employer contributions to a disability plan to the employee’s income at year-end. HOWEVER, the employer can pay the employee’s premiums to the plan by accounting for them in the same manner as wages or salary throughout the year and include the amount in Box 14 “Employment Income”.
Extended Health & Dental Premiums
Offering supplementary health care coverage over and above what is available under the public system is important for employees. In fact, 91% of Canadian employers offer an extended health care benefit to supplement the government plan for salaried employees.
· 77% of employers pay 100% of the premium
· 51% of employers offer extended health care to hourly workers
· 73% pay 100% of the premium
Outside of Quebec, premiums paid by the employer for extended health and dental benefits (which includes, but is not strictly limited to pharmacy, vision, paramedical and travel) are NOT treated as a taxable benefit to the employee. Claims paid are also tax-free to the employee.
Cost Sharing
The majority of benefit plan providers/insurers, the employer MUST contribute a minimum of 50% of the TOTAL premium. Many times, employers will payroll deduct the remaining 50% from employees. In those cases where applicable, the insurer will deem the employee’s 50% to be first allocated to the disability and life benefits to maintain the non-taxable status at the point of claim (per above).
Where the benefit plan is aligned strategically to productivity, the employer will pay 100% of the health and dental benefits, leaving the employee to pay 100% of the Life and Disability benefits.
Employers can choose to pay anywhere from 50% to 100% of the total premium, so long as they remember to consider the tax consequences for the employee for the taxable benefits, like disability. Many times, this can also be accommodated through the policy by increasing the edibility from 67% to 75% taxable.
It is always important to let the insurer know if any portion of the disability is being funded by the employer so the policy contract and billing statement can be updated.
Billing Statement
More than just allying the total premium due, the monthly billing statement:
· Shows the employees presently covered
· Employee identification (id) number
· How much each employee is covered for by line of benefit
· And breaks out the deductions for cost sharing.
Let’s have a conversation.
Reach out if you would like to explore your corporate benefit options, like:
· Building “Best-in-Class” benefits
· Analyzing current coverage to ensure best match to needs.
· Flexible models best suited to various classifications of employees
· Using health spending accounts as the non-taxable bonus to align with the Group RRSP
Note: this was written without the aid of Artificial Intelligence (AI)
Disclaimer: Please note that the information provided, while authoritative, is not guaranteed for accuracy and legality. The site is read by a world-wide audience and employment, taxation, legal vary accordingly. Please seek legal, accounting and human resources counsel from qualified professionals to make certain your legal/accounting/compliance interpretation and decisions are correct for your location. This information is for guidance, ideas, and assistance.
