Both accident benefits and critical illness benefits are taxable as of Jan. 2013. As per the Federal Budget released in March 2012, and the Notice of Ways & Means motion on October 15, 2012, employer contributions to group accident benefits and sickness insurance plans will be a taxable benefit to employees across Canada beginning January 1, 2013.
Thus, employer contributions to both group accidental death and dismemberment (AD&D) insurance premiums and group critical illness insurance (CI) premiums will become taxable income for federal income tax purposes. This change impacts wage loss replacement benefits where benefits are paid in a lump sum.
More precisely, an employer’s contributions to a group sickness or accident insurance plan is a taxable benefit and must be included in the employee/member’s income for the year in which the contributions are made.
The changes to group AD&D and group critical illness insurance plans will apply to contributions made by employers starting January 1, 2013. However, if contributions made by an employer after March 28, 2012, and before 2013, relate to coverage provided after December 31, 2012, the contributions will be a taxable benefit and included in the employee’s 2013 income.
With some of our Insurance Partners, this change will be reflected on the Carrier billing statement in the Taxable Benefit Report section. However, most Insurers do not have this capability. In those cases, many of these other Insurers will have reports that they will/can produce annually that can identify taxable benefit consequences for an employee/member population.
As an additional point of clarification, it should be noted that these change do not apply to the following wage loss replacement benefits, where benefits are paid on a periodic basis:
- Weekly Indemnity (Short Term Disability)
- Long Term Disability
- Private Health Services Plans (including Health, Drug and Dental plans)
To view information distributed by the federal government regarding the changes, please refer to http://www.cra-arc.gc.ca/gncy/bdgt/2012/qa06-eng.html
For over 20 years, Chris Pryce of Human Capital Benefits has been advising employers on all aspects of managing employee benefits programs and related products. If you have any questions, you can contact Chris at 416.924.8280 or by email at firstname.lastname@example.org