Traditionally, when you are filling out your annual income tax returns, the benefits of Short Term Disability and Long Term Disability will be taxed, which means that the income tax was not deducted when you received STD or LTD payments. CRA requirements have changed from January 2015. The STD and LTD payments will now be taxed at the time when the payment is being issued. If you are a recipient of a disability pension, then get in touch with Disability Lawyer in Toronto, who will guide you through the process.
Can Long Term Disability Benefits be taxed?
Canada Revenue Agency updated its disability benefit tax withholding requirements in 2015. There has been a change in the method of calculating taxable disability benefits for both Short Term Disability and Long Term Disability plans. From now on the payments made for both STD and LTD would be taxed at the time of the issue of payment.
STD and LTD Wage Loss Replacement Plans (WLRPs), which ensures the employees any against loss of employment income in case of disability, accident or sickness, will be subjected to tax when the employer is the one who is making contributions. It is reported to be in line with 104 of your T1.
If the payments for STD and LTD falls under income-replacement benefits, then the payment is made to the person who is unable to work as a result of auto accidents, are not taxed. Income replacement benefits are also offered as a part of the Statutory Accident Benefits (SABs).
Premiums paid by Employee:
If the employee is making the full payments for their premiums for STD or LTD plan, then it is not taxable. When paying the LTD insurance premiums, you are using your after-tax dollars, meaning you don’t reduce your income tax to cater for the premiums paid for disability insurance. When receiving disability pensions under an insurance plan for which you paid all the premiums, then the benefits are not usually taxed.
Premiums paid by Employer:
is normally taxed for all the compensations received by the employer, including salaries, employer-provided parking and one time bonuses. Though the employer doesn’t have to pay the tax on the preiums paid to cover you under any insurance policy for LTD or STD, as there is a trade-off that happens. You will have to pay tax on any benefits which you will get under such policy in the case of a disability. The premiums which the employers pay for you have to be added to your income through payroll deductions or as a lump sum to your T4 at the end of each year.
If the group disability premium is shared by you and your employer, then you are entitled to benefits which are equal to your contributions, on a non-taxable basis. In case you qualify for non-taxable plans, then you are legally obliged to pay the full premium and this must happen in practice.