Principal Issues: Taxability of disability benefits under employer-sponsored wage loss replacement plans
Position: When an employer pays all or a portion of the cost of premiums for such a plan, the amount is not included in the employee's income as a benefit, pursuant to a specific exception in the Act. Should the employee receive periodic payments under the plan because of a disability, they are taxable as employment income in the year received. However, the employee can deduct all the contributions he or she made to the plan in that year and in previous tax years if they have not already been deducted from benefits previously received. The gross amount of the benefit received under a plan is reported in box 28 of a T4A slip the employee receives. The amount the employee reports on line 104 of his or her tax return is the gross amount of the benefit less the contributions.
Reasons: Paragraph 6(1)(f) of the Act and IT-428
June 19, 2006
XXXXXXXXXX
Dear XXXXXXXXXX:
Thank you for your letter received on April 3, 2006, concerning the taxability of disability benefits under employer-sponsored wage loss replacement plans.
As noted in your correspondence, the Canada Revenue Agency's interpretation of the relevant provisions of the Income Tax Act is explained in Interpretation Bulletin IT-428, Wage Loss Replacement Plans. When an employer pays all or a portion of the cost of premiums for such a plan, the amount is not included in the employee's income as a benefit, pursuant to a specific exception in the Act. Should the employee receive periodic payments under the plan because of a disability, they are taxable as employment income in the year received. However, the employee can deduct all the contributions he or she made to the plan in that year and in previous tax years if they have not already been deducted from benefits previously received. The gross amount of the benefit received under a plan is reported in box 28 of a T4A slip the employee receives. The amount the employee reports on line 104 of his or her tax return is the gross amount of the benefit less the contributions.
I appreciate the opportunity to respond to your question.
Sincerely,
The Honourable Carol Skelton, P.C., M.P.
Randy Hewlett
613-957-2049
2006-018284