Has the latest coronavirus or COVID-19 pandemic sparked health and financial concerns in your everyday life? Then tax season is probably the last thing you want to deal with. That’s why the Canada Revenue Agency (CRA) has extended the tax deadline so that:
- you can file your 2019 taxes by June 1, 2020, and
- you won’t have to pay income tax until after August 31, 2020.
- Get the latest updates on COVID-19.
When you do get a chance to think about filing your taxes, you may wonder, “Is there a simple yes or no answer to the question posed in the headline?”
Sorry, but there’s no 1-word answer. “Probably not” is the most useful 2-word answer.
When are insurance premiums tax deductible?
Whether or not your insurance premiums* are tax deductible depends on your own or your company’s specific tax situation. (*Premiums refer to the monthly or annual fees youpay tohave insurance.)
Thanks to Canada’s Income Tax Act (ITA), deductibility of insurance premiums is a complicated maze of specific rules for specific scenarios. (Don’t believe it? Check out the index to the ITA – the index alone is enough to make your head spin.)
Generally, life, health and disability insurance premiums aren’t tax-deductible for individuals or businesses. So you can assume the answer is no until you find out whether your specific situation is an exception. For a clear understanding of what tax deductions you’re eligible for, it’s best to talk to a tax professional.
Think of the info below as a way to help you better frame the question when talking to a tax professional about your situation.
Are these insurance premiums tax-deductible?
For individuals: Not usually. You may get a tax deduction if you use your life insurance policy as collateral on a loan. Ask your accountant or a tax professional if it’s possible in your situation.
For businesses: It’s the same as an individual. A corporation can deduct life insurance premiums if they’re used as collateral for a loan. Again, it’s recommended to get tax advice for this.
For individuals: No. Your employer generally pays these premiums and it's considered taxable income for their employees.
For businesses: Does your business pay the premiums for your employees? If yes, these premiums are tax deductible as long as they’re a reasonable business expense.
- What type of life insurance do you need?
- When should you buy life insurance?
- How much life insurance do you need?
LIFE INSURANCE USED FOR CHARITABLE GIVING
For individuals: No, but you can get a tax credit for the premiums you pay if the charity owns the policy. What’s a tax credit? You may already know that a tax deduction lowers your taxable income. A tax credit, however, directly reduces the amount of taxes you owe.
What if you own the policy but name the charity as the beneficiary? Then you don’t get a tax credit for the premiums you pay, but your estate gets a tax credit for the death benefit the charity ultimately gets. (The death benefit refers to the amount of money a beneficiary receives after an insured person dies.) Please seek tax advice if you’re interested in this strategy.
For businesses: Yes, if the charity owns the policy. Again, please seek tax advice for this strategy.
LIFE OR HEALTH INSURANCE OWNED BY AN EMPLOYEE, WITH PREMIUMS PAID BY EMPLOYER
For individuals: No. Premiums paid by the employer are a taxable employee benefit.
For businesses: Yes, as long as the premium payments are a reasonable business expense.
For individuals: Not possible since individuals can’t buy key person insurance to insure their own lives. In any event, it would be treated the same as individual insurance.
For businesses: No. Premiums a business pays for life or health insurance aren’t deductible when the business will get the death benefit.
GROUP HEALTH INSURANCE PROVIDED BY EMPLOYER, FOR EMPLOYEES
For individuals: No. Employer-paid critical illness insurance and income-style long-term care insurance (LTCI) premiums are taxable employee benefits. Employer-paid premiums for disability income insurance (DI), personal health insurance and reimbursement-style LTCI are not taxable employee benefits.
For businesses: Yes, as long as premiums are a reasonable business expense. But the answer’s no if premiums are paid for a non-employee shareholder.
HEALTH INSURANCE OWNED BY INDIVIDUALS OR SELF-EMPLOYED PEOPLE
For individuals: No for critical illness insurance; income-style LTCI, disability income insurance.
What about personal health Insurance including reimbursement-style LTCI? No, unless you’re self-employed, in which case yes (subject certain to limits). Personal health insurance premiums that can’t be been deducted may count towards a claim for the Medical Expense Tax Credit.
For businesses: Not available.
- Do you qualify for the disability tax credit?
- Are you entitled to a tax refund for your medical expenses?
- Are you paying more tax than you need to?
Please talk to your tax professional before claiming any insurance premium as a tax deduction. If you don’t have one, ask your advisor for a recommendation.
This article only provides general information. Sun Life Assurance Company of Canada and the author do not provide tax advice. Before acting on information in this article, individuals and corporations must seek advice from a qualified professional like an accountant or lawyer.