Taxation of Employee Benefits

You may provide valuable perks to your employees such as a car, cell phone and paid parking. The value of these benefits is added to an employee’s taxable salary so that the employee will pay income tax on this amount. Since these perks are considered by the government as another form of salary, they must be included in their taxable salary.

A group insurance plan is also a benefit to your employees. Are group life and health insurance premiums taxable benefits? And can employees claim their portion of paid premium as a tax credit?

In short, some employer-paid premiums are taxable benefits. This includes:

• Group Life insurance,
• Dependant Life insurance,
• Accident insurance and
• Critical Illness insurance.

Outside of Quebec, employer-paid premiums for health insurance benefits like prescription drug coverage, eye and dental care, and the like are not taxable. In Quebec, they are. Employees may also be able to claim some health insurance premiums they paid as a tax credit.

The following table provides a quick reference that addresses employer contributions, eligible tax credits for employees, and the taxation of benefits received.

* When the employee pays the entire disability premium, disability benefits received are NOT subject to income tax.

If the employer pays any portion of the disability premium, disability benefits received ARE subject to income tax. As required by Canada Revenue Agency, taxes are withheld from disability benefits paid to employees.