Compliance with CRA guideline on taxation of disability benefits

Tuesday, November 4, 2014

The Canada Revenue Agency (CRA) now requires that taxes be withheld on disability benefits in cases where the employer pays all or part of the premium. There are no exceptions to this new rule. For more details, please refer to the new version of the Employers’ Guide – Payroll Deductions and Remittances (T4001), published in January 2014.

The Canadian Life and Health Insurance Association (CLHIA) and the CRA have agreed to delay the guideline’s effective date until January 2015.

Even though our nation-wide practice has been to withhold taxes on taxable disability benefits, we made a few exceptions in the past when plan sponsors asked to be exempted. Since we are now required to start deducting taxes at source, we have to adjust some of our active groups’ contracts to ensure they comply with this new legislation. Note that we will only be contacting advisors and plan administrators for whom exceptions had been made, as well as their affected plan members.