Group Insurance plans are subject to both federal and provincial taxes.
FEDERAL TAX
The Goods and Services Tax/Harmonized Sales Tax (GST/HST) is not charged on insured benefits.
The tax is charged on the Administration Fee (only) under self-insured plans which do not contain any element of insurance.
PROVINCIAL TAXES
Insurance Tax, more commonly referred to as Premium Tax, is applicable to every insurance company in Canada.
The tax is built into the premium, or charged on plan costs for self-insured plans.
The rate varies by province and currently range between 2% and 4%.
Retail Sales Tax (RST), also referred to as Provincial Sales Tax (PST), is only applicable in Ontario and Quebec.
The tax is charged on the premium, or plan costs, on all plans regardless of whether they are insured or self-insured.
The current tax rate in Ontario is 8% and in Quebec it’s 9%.
Provincial Taxes Taxability Status of Premiums and Benefits
The following chart outlines the current taxability status of employer contributions towards premium rates under group insurance plans and government programs as well as the taxability status of benefits received under these plans.
Is the Employer’s Cost Tax Deductible?
Are the
Employer
Contributions
Taxable to
Employee?
Does the Employee pay Income Tax on the Benefit?
Group Insurance Benefit
Life
yes
yes
no
Dependent Life
yes
yes
no
Critical Illness
yes
no
no
AD&D
yes
no*
no
Health
yes
no*
no
E.A.P.
yes
no
no
Health Spending Account
yes
no*
no
Dental
yes
no*
no
Weekly Indemnity
yes
no
yes/no**
Long Term Disability
yes
no
yes/no**
Government Benefits
WSIB
yes
no
no
Employment Insurance
yes
no
yes
QPIP
yes
no
yes
CPP
yes
no
yes
OAS Pension
n/a
n/a
yes
GIS
n/a
n/a
no
The Allowance
n/a
n/a
no
No for all provinces and territories, except Yes for Quebec.
** Disability benefits are taxable if the employer pays any portion of the premium. If the employee pays the entire premium the benefits are not taxable.
Where the employer’s contribution is considered a taxable benefit the applicable Ontario or Quebec Retail Sales Tax on the premium must also be included on the employee’s T4 as a taxable benefit.
Some employee contributions may be eligible for a tax deduction or tax credit.
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