Employee benefits: Taxable or not?

Have you received your T4 slip for the previous tax year? Are you wondering why your income in Box 14 is higher than the salary you earned for the year? That's because your employer must report premiums* they pay for certain group benefits. They report the value of some perks as a taxable benefit, and you must pay tax on those amounts.  

(*Premiums refer to monthly or annual fees.) 

You may have valuable company benefits, like a cell phone, tuition reimbursement or service awards. But you may or may not have to include the value of these benefits in income. 

Here's how the Canada Revenue Agency (CRA) treats common employee benefits for tax purposes. 

Are group life and health insurance premiums taxable benefits?

Some employer-paid premiums are taxable benefits. This includes:  

• group life insurance,  
• dependant life insurance,  
• accidental death insurance and  
• critical illness insurance.   

What's more, your taxable income includes the amounts paid on your behalf. 

Outside of Quebec, employer-paid premiums for health insurance benefits like prescription drug coverage, eye and dental care, are not taxable. In Quebec, they are, but only on your provincial, not federal, tax return. You may also be able to claim some health insurance premiums you paid as a tax credit. 

Are you entitled to a tax refund for your medical expenses?

Are group short- or long-term disability premiums taxable benefits?

Employer-paid short-term disability or long-term disability premiums are not taxable benefits. But any short- or long-term disability benefits you receive in the future from your employer will be taxable. Conversely, if all employees pay their own short or long-term disability premiums, any benefits they receive are tax-free. The same applies to premiums you pay for an individual policy you own. If you pay premiums yourself, using after-tax money, any benefits you receive are tax-free. 

Do you qualify for the disability tax credit?

Are non-group insurance plans a taxable benefit? 

Employer contributions to a non-group insurance plan* are a taxable benefit even if the plan is for life, sickness, accident or disability insurance.

*A non-group insurance plan is a plan for an individual employee.

For example, an executive may negotiate individual paid participation in a health/wellness plan. This may include a private facility as part of their total compensation. The annual fee would be taxable. 

Are pension plans and Group Registered Retirement Savings Plan (RRSPs) taxable benefits? 

Your employer's contributions to a registered pension plan on your behalf aren't taxable. So what happens when your employer contributes to or matches your group RRSP contributions? Then this amount is a taxable benefit that increases your employment income. However, assuming you have contribution room, you can use your employer’s RRSP contributions (and your own contributions), to offset the income inclusion.

What if you tell your employer you have RRSP contribution room? Then your employer may be able to reduce the income tax they're required to withhold from your pay, related to the RRSP contribution taxable benefit amount.   

Be aware that your employer's contribution to your pension plan and/or RRSP reduces your RRSP contribution room for the following year. This is called a “pension adjustment” and it's reported on your T4. Of course, your earned income for this year increases your contributing room for the following year. Don’t worry about trying to figure out how much RRSP contributing room you have. The CRA informs you of your RRSP contribution room for the upcoming year. You’ll see this on your income tax Notice of Assessment that you receive every year after filing your tax return.

• How do employee pension plans work?
• Group RRSPs: Why you need to get in on the action

Is your work phone a taxable benefit?  

Companies sometimes provide employees with smartphones plus a voice and data plan. But the CRA may not consider the payments on your work phone as a taxable benefit. Not as long as:

• the cost of the phone plan is reasonable, and 
• you don't incur costs for personal use (e.g., additional long-distance charges) beyond the basic fee for the plan. 

Is your equipment for working from home a taxable benefit?  

Under regular circumstances, many industries offer full- or part-time arrangements for working from home. Before the COVID-19 pandemic forced most people to work from home, equipment and supplies provided by your employer were not taxable benefits.

However, for the 2020 tax year, the Canada Revenue Agency (CRA) issued a temporary flat rate deduction. This rate allows eligible employees to claim a $2 deduction for each day they worked from home due to COVID-19 (up to a maximum of $400).

The CRA has discontinued that flat rate reduction for the 2023 tax year.  

Use the CRA’s calculator to figure out your home office expenses

Is your tuition reimbursement a taxable benefit?  

Tuition paid by your employer isn't a taxable benefit if you need the training to progress in your job. For example, let's say you're employed by a bank and are working towards becoming a Certified Financial Planner. In this case, any tuition reimbursed by the bank for this program would not be taxable. 

What if the company gives your child a bursary or scholarship? The amount may or may not be taxable. Your employer will report the amount on a Form T4A sent to your child. Then, you can determine whether the CRA regards the bursary or scholarship as taxable to your child. 

Are gifts and awards taxable benefits?  

Employers sometimes give non-cash gifts or awards, worth under $500, for things like: 

• outstanding service, or  
• milestones (such as a wedding or the birth of a child). 

In these cases, the value of the award is not a taxable benefit. 

Similarly, non-cash awards worth less than $500 aren't taxable benefits if you: 

• worked for the organization for at least five years and 
• are not eligible for such an award more often than every five years. 

However, your taxable income includes incentive awards and performance bonuses. 

Are you starting a new job or enrolling in a benefits plan? It's useful to know how you’ll be taxed for benefits so you can structure your choices accordingly. For more information, contact your employer or benefits provider. 

Talk to a tax professional for more information 

That’s a quick look at how the CRA treats common employee benefits for tax purposes. But, keep in mind that the CRA may announce changes to the tax rules at any time. Visit the CRA’s website for any tax announcements. We also recommend you consult with a tax professional like an accountant to: 

• stay updated on the latest tax information and  
• make sure you’re eligible for certain tax deductions and credits.  

Apart from your taxes, what if you need help managing your finances?   

You may want to consider talking to an advisor. An advisor can look at your specific financial needs and goals to help you build a personalized plan.   

Most advisors now offer to meet Clients virtually by video chat.  Find an advisor today.   

Read more: 

• CERB and other emergency benefits: How COVID-19 affects your taxes  
• 5 smart ways to use your tax refund
• How to keep more of your retirement income and pay less tax

This article is meant to provide only general information. Sun Life Assurance Company of Canada does not provide legal, accounting, taxation, or other professional advice. Please seek advice from a qualified professional, including a thorough examination of your specific legal, accounting and tax situation.