Employment Medical Benefits

In general, when employers provide employees with benefits in addition to their regular salary, the value of such benefits must be included in the employee’s income as a taxable benefit unless there is a specific exception provided in the Income Tax Act or the Canada Revenue Agency (CRA) has an administrative position not to tax a particular benefit in the hands of an employee.

With respect to employer provided medical benefits, the rules can be quite complex. For example, if the employer pays an employee’s Medical Services Plan (MSP) premiums, it is a taxable benefit to the employee. On the other hand, premiums for group medical plans including private extended health plans, vision care plans, prescription coverage and dental plans paid by the employer are not a taxable benefit to the employee, provided the plans only pay the costs of medical expenses that are deductible under the Income Tax Act. The employee participating in such plans cannot claim a tax deduction for the medical costs incurred except to the extent the costs are not covered or reimbursed by the employer paid plan.

The benefits or payments from certain kinds of insurance plans such as disability insurance and sickness income maintenance plans will be tax-free to the employee even if the plan is organized and sponsored by the employer, provided the employee pays the premiums. If the employer pays the premiums as a taxable benefit, a portion of the payment to the employee from such plans may be taxable to the employee. Typically the premiums are withheld by the employer from the employee’s net pay, which means the employee is paying the premium with his or her after-tax income. As a result, benefits or payments to the employee from such an insurance plan are tax-free to the employee.

If an employer pays the premiums for the employee under a group term life insurance plan (generally an insurance plan that is in place only as long as the individual is an employee where the employee’s spouse or family is the beneficiary), the premium will be a taxable benefit to the employee but a payment out of the plan on the death of an employee will not be taxable.

The employee will not receive a taxable benefit for accessing counselling services provided for or paid for by the employer. These tax-free counselling services are limited to the physical or mental health of the employee as well as retirement or re-employment counselling.

Contact a Chartered Professional Accountant if you have any questions about taxable benefits from employment.