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Taxation of Group Insurance Plans

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 Yes 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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