As a general rule, employer paid LTD means benefits are taxable upon receipt. If the premiums are paid with after-tax dollars (they usually are), then your long-term disability benefits are not taxed. If employees are paying 50% of premium then you can allocate employEE paid 50% to cover all of the taxable portion that is dependent on tax free income and then the rest of percentage left would cover the non-taxable benefits. https://www.aga.ca/en/blog/long-term-disability-insurance-taxable-non-taxable The premiums you pay on behalf of your employees for short-term or long-term disability insurance are not taxable benefits. needs to be paid in full by employees in order to get income tax free should they ever need it. If employees pay a share of the overall premium their portion is credited first to the LTD benefit. This reduces your taxable income by the same amount. Report the benefit for current employees and employees who are on a leave of absence (such as maternity leave) in box 14, "Employment income," and in the "Other information" area under code 40 at the bottom of the employee's T4 slip.. But LTD benefits can be taxable. The most common reason this happens is that the employer pays for all the benefits. If your LTD benefits were taxable, then the CPP benefit paid to the insurer will not be taxed. Background. Employer Unless the plan member is paying the entire LTD premium, the benefit will be taxable when received. To qualify as a non-taxable benefit the employee must pay 100% of the LTD premium. Essentially, the question is whether the taxpayer receives an economic advantage or benefit that can be measured in money, and whether the taxpayer is the primary beneficiary of the benefit. The Canada Pension Plan (CPP) came into effect on January 1, 1966 to give Canadian workers a foundation to base their retirement income on. If you choose to pay for the LTD premium with after-tax dollars, you'll pay more now. Reporting the benefit. That means you get to keep all of your benefits. There is a Canada Revenue Agency analysis found here, that determines whether a simple benefit will be deemed taxable or not. The CPP is a mandatory plan and employees generally make contributions given the fact that they hold pensionable employment in Canada. 10. Important tax considerations are as follows: If you choose to pay for the LTD premium with pre-tax dollars (as you do for most of your other benefits) and you become disabled, your LTD benefits will be subject to federal income tax. Pensionable employment is any employment for which a pension plan or fund has been set up. However, in the event that a claim is filed by the employee and disability insurance benefit is received by the employee, the benefit is taxable to the employees. The demonstrated numbers reflect January 2010 combined federal and Ontario tax rates and the single personal tax credit with a non-taxable plan. Critical Illness and LTD (and AD&D??) For both individual and group long-term disability policies, the benefits may not be taxable. Short-Term and Long-Term Disability Insurance. Situation 1: You paid tax on the LTD benefits. The benefit schedule is generally based on a percentage of the employee's pre-disability gross earnings. When determining an appropriate benefit schedule, the tax status of the LTD benefit must be considered. A number of common benefits in Canada are actually taxable benefits and must be reported when an individual files his personal income taxes. A taxable benefit is a payment from an employer to an employee that is considered a positive benefit and can be in the form of cash or other type of payment. When issuing your annual T4A for LTD benefits, your insurer will include the reimbursement as an offset — a deduction against income on your T4A. Talk … If the employer pays the premium as a convenience to the employee and charges the employee with the premium as additional income to the employee in the same tax year, then I think you have a case for claiming employee paid LTD, thus no taxable benefits. Most LTD benefits are non-taxable. To qualify as a general rule, employer paid LTD means benefits taxable! 'Ll pay more now credited first to the insurer will not be taxable when received for LTD... Generally make contributions given the fact that they hold pensionable employment in.! Ltd benefit must be considered not taxable benefits entire LTD premium with after-tax dollars, you pay... For both individual and group long-term disability policies, the benefit schedule, tax... Benefits were taxable, then the CPP benefit paid to the insurer will not be.... 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