The concept of a "taxable benefit" can be intimidating—and for good reason, some might say, because in reality, it simply means additional tax for the employee.

What is a taxable benefit?

A "taxable benefit" refers to any good or service provided by an employer to an employee as part of their job. For example, payment for a car, parking, or housing in a remote area. The employee does not pay for this good or service, but its value must be added to their salary so that the employee pays tax on that amount.

The rationale behind this is that the benefit provided by the employer is considered by government authorities as salary paid in another form and must be taxed accordingly—hence the term "taxable benefit"!

What about group insurance?

If the employer pays part of the cost of a group insurance plan, that portion may be considered a taxable benefit (similar to the cost of a company car provided to the employee).

However, the mechanics of what is taxable are more complex for group insurance than for a car. Some coverage premiums are taxable, while others are not, and this varies depending on the level of government.

Here’s a summary:

Important: Only the portion of the premium paid by the employer is considered a taxable benefit for group insurance. If employees pay 100% of the cost for a coverage, there is no taxable benefit.

What about benefits paid out?

For benefits paid under various types of coverage, the situation is different. In fact, only payments under disability insurance (short and long term) may be taxable if the employer pays part of the cost of this coverage. To ensure that disability benefits remain non-taxable, employees must pay 100% of the cost (not a penny less) and this must apply to all employees offered the coverage, not just those receiving benefits. It is the employer’s responsibility to ensure compliance (the insurer has no way to verify this).

If this rule is not followed, the government may require that all previously non-taxable benefits be taxed retroactively and that the cost of disability coverage be charged retroactively to all employees.

Please note that benefits reimbursed from a health spending account (HSA) and a cost-plus program are also taxable (but only in Québec).

Can you reduce the taxable benefit?

To minimize taxable benefits for employees, it is recommended to optimize the payment of premiums for tax purposes. This involves allocating the employee’s share of the cost so that they pay first for coverage taxable at the government level (or at both government levels, in Québec). The total deduction paid by the employee remains the same, but taxes will be lower.

For example, if the premium is $102 and the cost-sharing is 50%-50%, here’s how it could look per pay period:

*Taxable in this example

The impact on taxable benefits in group insurance is the following:

On an annual basis, this can make a big difference!

All AGA clients can access a calculator that automatically applies tax optimization, and the monthly invoices can also provide the deductions calculated on this basis.

Want to learn more about taxable benefits in group insurance? Contact us now!