Chapter 3: Inclusions—Employee Life & Disability Insurance Benefits Flashcards
How are employer-paid life insurance benefits treated for tax purposes?
Premiums paid by an employer on a life insurance policy are a taxable benefit and must be included in employment income under ITA 6(4).
However, lump-sum amounts paid out on the death of an employee under the life insurance policy are not required to be included in income.
What are the rules for contributions made by employees to group sickness or accident insurance plans?
Contributions made by employees are not deductible against employment income.
However, if the employee subsequently qualifies to receive disability payments, the contributions can be deducted from the disability amounts received.
What are the rules for contributions made by employers to group sickness or accident insurance plans?
Employer contributions are generally excluded from being a taxable benefit under ITA 6(1)(a).
However, under ITA 6(1)(e.1), employer contributions are included in income, and any disability payments received are included in the employee’s income if they are periodic and compensate the individual for the loss of employment income.
What happens if an employee receives disability amounts, and the employer made contributions to the plan?
If the employer made contributions to the disability plan, the disability amounts received by the employee must be included in income.
However, the employee can reduce the taxable amount by the contributions they made to the plan in the current or previous years.
What are the three possible situations regarding employer and employee contributions to disability plans?
Employee Pays All Plans: If the employee pays 100% of the contributions, the amounts are not deductible, but any disability amounts received are not included in income.
Employer Contributes - Benefits Not Taxed: If the employer pays contributions and the benefits received are not periodic or do not replace employment income, the benefits are not included in income. The employer contributions are a taxable benefit.
Employer Contributes - Benefits Taxed: If the employer pays contributions and the disability amounts are periodic and replace income, both the contributions and the benefits are included in income.
What happens if an employer makes regular contributions to a group plan that provides disability benefits?
If the employer makes regular contributions to a group plan, any disability amounts received will be included in the employee’s income.
The employer’s contributions are treated as a taxable benefit to the employee and must be included in employment income.
In the case where an employee makes contributions to a group disability plan, how do their contributions affect their taxable income?
An employee can offset the amount required to be included in income by the amount of their contributions to the plan made in the current or previous years.
For example, if an employee receives $16,000 in disability benefits and has made $3,600 in contributions, only $12,400 is included in income.
Are premiums paid by employers for employee income maintenance and insurance plans subject to GST/HST?
No, premiums paid by employers for employee income maintenance and other insurance plans are exempt from GST/HST, and no GST/HST is added to taxable employment benefits for these services.
How does contributing to a group disability benefit plan affect Lance Bardwell’s 2024 employment income in Exercise 3-13?
Lance received $5,250 in disability benefits in 2024, and his personal contributions to the plan were $225.
His employer contributed $1,800. Since his employer contributed to the plan, the disability payments are taxable, but Lance can deduct his contributions from the total amount.
Therefore, $5,025 ($5,250 - $225) will be included in his 2024 employment income.
