Premiums and contributions to insurance plans

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• Medical expenses, including payments from a private health services plan (PHSP)

Generally, if you pay premiums or you make contributions to insurance plans for your current employee, former employee or retired employee, the amount you paid for premiums may be a taxable benefit.

On this page

• Steps
• References

1. Determine if the benefit is taxable

   Depending on your situation, the benefit may not be taxable under the CRA's administrative policy  or the Income Tax Act.

   Situations

   Situation: You pay premiums for a group life insurance policy

   Taxable situation

   If you pay premiums for a group life insurance policy (other than a group term life insurance policy) for your current employee, former employee or a retired employee, the amount you paid for premiums is a taxable benefit.

   Group term life insurance policy

   If you pay premiums for a group term life insurance policy, you need to calculate the taxable benefit differently based on whether the premiums are:

   • Paid regularly and does not depend on age or gender
   • Not paid regularly or depends on age or gender

   What is a group term life insurance policy

   Group term life insurance policy

   A group term life insurance policy is one for which the only amounts payable by the insurer are policy dividends, experience rating refunds, and amounts payable on the death or disability of a current employee, former employee or retired employee.

   Term insurance

   Term insurance is any life insurance under a group term life insurance policy other than insurance for which a lump-sum premium has become payable or has been paid. Life insurance for current employees would usually be term insurance, although it is sometimes provided for retired employees.

   Lump-sum premium

   A lump-sum premium is a premium for insurance on an individual's life where all or part of the premium is for insurance for a period that extends more than 13 months after the payment of the premium (or more than 13 months after the time the premium became payable, if it is paid after it became payable).

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    You must report the taxable benefit using code 40 on a T4 slip (current employee and employee on leave of absence), or code 119 on a T4A slip (former employee or retired employee). The $500 threshold for filing the T4A slip does not apply .

    Continue to: Step 2 – Calculate the value of the benefit

   Situation: You pay premiums or you make contributions to a provincial or territorial hospital, or a medical insurance plan

   Non-taxable situation

   If you have to pay the employer health tax in the provinces of Ontario or British Columbia (as of 2019) it is not a taxable benefit provided by the employer.

   Learn more about the programs: Employer Health Tax (EHT) | Province of Ontario and Employer health tax | Province of British Columbia

   Taxable situation

   If you pay premiums or you make contributions to a provincial or territorial hospital, or a medical care insurance plan for your current employee, former employee or retired employee, the amount you pay is a taxable benefit.

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    If the benefit is taxable, you must report the benefit using code 40 on a T4 slip (current employee) or code 118 on a T4A slip (former employee or retired employee).

    Continue to: Step 2 – Calculate the value of the benefit

   Situation: Premiums or contributions made by the Government of Canada to a hospital or medical insurance plan

   Taxable situation

   If premiums or contributions are made by the Government of Canada to a hospital or medical insurance plans for its employees and their dependants serving outside Canada, the amounts paid are a taxable benefit. This also applies to dependants of members of the Royal Canadian Mounted Police and the Canadian Forces serving outside Canada.

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    You must report the benefit using code 40 on a T4 slip (current employee) or code 118 on a T4A slip (former employee or retired employee).

    Continue to: Step 2 – Calculate the value of the benefit

   Situation: You pay premiums or you make contributions to a non-group insurance plan

   Taxable situation

   If you pay premiums or you make contributions to a non-group insurance plan (plan offered to an individual employee) for your current employee or former employee, the amounts paid are a taxable benefit.

   This includes the following non-group insurance plans:

   • Sickness or accident
   • Disability
   • Income maintenance

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    You must report the taxable benefit using code 40 on a T4 slip (current employee) or code 028 on a T4A slip (former employee or retired employee).

    Continue to: Step 2 – Calculate the value of the benefit

   Situation: You pay premiums or you make contributions to group sickness or accident insurance plans

   If you pay premiums or make contributions to group sickness or accident insurance plans for your current employee, former employee or a retired employee, the amounts paid are a taxable benefit unless they are in respect of a wage loss replacement plan (WLRP) benefit that is payable on a periodic basis (it is not a lump-sum payment).

   The CRA will generally accept that an employer’s contributions to a sickness, accident, disability or income maintenance plan qualifies as a contribution to a group sickness or accident insurance plan provided that the particular plan is both a group plan and an insured plan.

   What is a WLRP

   Generally, a WLRP is an arrangement between an employer and employees, or an employer and a group or association of employees, where the employees receive benefits on a periodic basis for loss of employment income due to sickness, maternity or accident.

   A WLRP may provide short-term disability (STD), long-term disability (LTD) or weekly indemnity (WI) benefits. The benefits may be paid by the employer, or by an insurance company, trustee, board of trustees or other independent organization.

   A WLRP must meet all of the following conditions:

   • It is a group plan, in that it covers more than one employee
   • The purpose of the plan is to indemnify employees against a loss of employment income as a result of sickness, accident or maternity
   • Benefits are paid on a periodic basis, not as a lump-sum
   • It follows insurance principles that funds are accumulated, normally in the hands of a trustee or in a trust account, and are calculated to be sufficient to meet anticipated claims

   Learn more: Wage loss replacement plans

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   •  If the benefit is not taxable, you do not need to do any calculations

   • If the benefit is taxable, you must report using code 40 on a T4 slip (current employee) or code 028 on a T4A slip (former employee or retired employee)

      Continue to: Step 2 – Calculate the value of the benefit

   Situation: You make contributions to a private health services plan (PHSP)

   Non-taxable situation

   If you make contributions to a PHSP  for your employees, such as medical and dental plans, and the plan meets all conditions to be considered a PHSP, the amounts paid are not a taxable benefit.

   What is considered a PHSP

   A plan is considered a PHSP where all of the following conditions are met:

   • All of the expenses covered under the plan are:

     • Medical and hospital expenses (medical expenses)
     • Expenses incurred in connection with a medical expense and within a reasonable time period following the medical expenses (connected expenses)
     • Combination of medical expenses and connected expenses
     Example – Connected expenses

     The employee group medical insurance plan for Company ABC covers the cost of transporting an employee and their vehicle home if that employee becomes ill while out of Canada. That employee must return to Canada for medical treatment but cannot drive because of their illness.

     In this situation, the cost of transporting the vehicle to the employee’s home is not a medical expense. However, as long as it is incurred within a reasonable time after the medical expense, it is considered a connected expense because the employee could not drive back to Canada to get medical treatment (which is a medical expense).

   • “All or substantially all” (90% or more) of the premiums paid relate to medical expenses that are eligible for the medical expense tax credit (METC)

     How to determine if a plan meets the “all or substantially all” (90% or more)

     Insured plan (plan is backed by a contract of insurance)

     An insured plan meets the "all or substantially all" (generally 90% or more) requirement if “all or substantially all” of the premiums paid in the calendar year relate to medical expenses that are eligible for the METC.

     The benefits paid to employees in the calendar year are not considered in determining whether the plan meets the “all or substantially all” requirement.

     The following example explains when the “all or substantially all” requirement will be met for an insured plan.

     Example – Insured plan

     The group employee insurance plan for Company XYZ covers the following four types of expenses:

     Table of Insured plan meeting the Private Health Services Plan requirements

     Insured plan meeting the Private Health Services Plan requirements
     Type of expense	Eligible for the METC	Percentage of premiums paid in the calendar year that relates to the expense	Benefits paid in the calendar year
     Prescription drugs	Yes	70%	69%
     Dental expenses	Yes	10%	11%
     Hospital expenses	Yes	12%	7%
     Medical expenses that are not eligible for the METC	No	8%	13%

     This plan meets the “all or substantially all” requirement because 92% (70% + 10% + 12%) of the premiums paid relate to medical expenses that are eligible for the METC, while 8% of the premiums relate to other medical expenses. The fact that only 87% (69% + 11% + 7%) of the total benefits paid relate to medical expenses that are eligible for the METC is not relevant in determining whether the plan qualifies as a PHSP.

     Self-insured plan (plan is not backed by a contract of insurance)

     When a plan is not backed by a contract of insurance, the CRA considers it to be a self-insured plan.

     A self-insured plan meets the “all or substantially all” (generally 90% or more) requirement for a calendar year if “all or substantially all” of the benefits paid to all employees that year are for medical expenses that are eligible for the METC.

     The following example explains when the “all or substantially all” requirement will be met for a self-insured plan.

     Example – Self-insured plan

     Company AAA pays the following benefits to its employees in a calendar year under its self-insured group employee insurance plan.

     Table of self-insured plan meeting the Private Health Services Plan requirements

     Self-insured plan meeting the Private Health Services Plan requirements
     -	Prescription drugs eligible for METC	Dental expenses eligible for the METC	Hospital expenses eligible for the METC	Medical expenses not eligible for the METC	Total benefits paid per employee
     Kim	$3,000	$1,000	Nil	$500	$4,500
     Mohammed	$2,000	$1,500	$800	Nil	$4,300
     Simon	$4,000	$500	Nil	$500	$5,000
     Total medical expenses	$9,000	$3,000	$800	$1,000	$13,800

     This plan meets the “all or substantially all” requirement because the benefits paid to all employees in the year for medical expenses that are eligible for the METC represent 93% ($9,000 + $3,000 + $800) of the total benefits ($13,800) paid.

     If you provide benefits through a self-insured plan that consists of health care spending accounts (HCSAs), the method for determining whether the plan satisfies the “all or substantially all” requirement for a particular calendar year is the same as for self-insured plans that do not consist of a HCSA. The employees' allocation of the ceiling amount to the various types of expense in an HCSA is not considered.

     Most employers that offer HCSAs do so under one group plan. However, in rare circumstances, each HCSA can be considered a separate insurance plan. The determination of whether one group plan or several individual plans exist must be based on the law and the facts of the case. For more information on HCSAs, see paragraphs 14 to 18 of Interpretation Bulletin IT-529, Flexible Employee Benefit Programs.

     The following example explains when self-insured HCSAs would meet the “all or substantially all” requirement.

     Example – Health care spending accounts

     Company BBB provides one self-insured group plan that consists of three HCSAs, each with a $5,000 ceiling amount. At the start of the calendar year, each employee allocates the $5,000 ceiling, as shown in the table below.

     Table of Health care spending accounts

     Health care spending accounts
     -	Allocation of ceiling amount to medical expenses			Benefits paid in the calendar year
     	Eligible for the METC	Not eligible for the METC	Total ceiling per employee	Expenses eligible for the METC	Expenses not eligible for the METC	Total benefits paid per employee
     Ann	$4,000	$1,000	$5,000	$4,000	$200	$4,200
     Sue	$3,500	$1,500	$5,000	$3,250	$650	$3,900
     Jim	$4,500	$500	$5,000	$4,250	$175	$4,425
     Total ceiling	$12,000	$3,000	$15,000	-	-	-
     Total benefits	-	-	-	$11,500	$1,025	$12,525

     The plan shown above meets the “all or substantially all” requirement. The total benefits paid to all employees that year for expenses that are eligible for the METC are 92% ($11,500) of the total benefits paid ($12,525). The fact that the total ceiling amounts allocated for expenses that are eligible for the METC ($12,000) are only 80% of the total ceiling amount, eligible and non-eligible ($15,000), is not relevant in determining whether the plan meets the “all or substantially all” requirement.

     However, if each HCSA is determined to be a separate plan:

     • Ann's plan satisfies the "all or substantially all" requirement because the benefits she received for expenses that are eligible for the METC are 95% ($4,000) of the total benefits ($4,200) that she received in the year.
     • Sue's plan does not satisfy the "all or substantially all" requirement because the benefits she received for expenses that are eligible for the METC are only 83% ($3,250) of the total benefits ($3,900) she received in the year.
     • Jim's plan satisfies the “all or substantially all” requirement because the benefits he received for expenses that are eligible for the METC are 96% ($4,250) of the total benefits ($4,425) he received in the year.

     Multiple plans

     Whether one or multiple plans exist is a question of fact and law. Multiple plans cannot be combined in determining if the “all or substantially all” requirement has been satisfied.

   • The plan is in the nature of insurance and contains all of the following elements:

     • An undertaking by one person
     • To indemnify another person
     • For an agreed consideration
     • From a loss or liability in respect of an event
     • The happening of which is uncertain
   • The plan provides coverage only to your employee, your employee’s spouse or common law partner, or any member of your employee’s household with whom your employee is connected by blood relationship, marriage or adoption

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   • If the benefit is not taxable, you do not need to do any calculations.

     If your employee makes contributions to a PHSP, you should report their contributions using code 85 on a T4 slip (current employee) or code 135 on a T4A slip (former employee or retired employee). They will use this amount to claim the qualifying medical expenses on their income tax and benefit return.

     If you do not report using this code, the CRA may ask the employee to provide supporting documents.

      Continue to: Step 4 – Report the benefit on a slip

   • If the benefit is taxable, you must report using code 40 on a T4 slip (current employee) or code 028 on a T4A slip (former employee or retired employee).

     Continue to: Step 2 – Calculate the value of the benefit

2. Calculate the value of the benefit

   If the benefit is taxable, the calculation of the benefit will depend on the type of insurance plan and other factors.

   • Most benefits

     For most premiums you pay or contributions you make to insurance plans for your current employee, former employee or retired employee, the benefit is the amount you paid as premiums or contributions to the plan.

     • Value of the benefit received or enjoyed
     • minus Any amounts your employee reimbursed you
        
     • equals Value of the benefit to be included on the T4 or T4A slip
     Example – Calculations

     An employer pays monthly premiums to a medical insurance plan for all their employees. The particular plan does not meet the conditions to be considered a private health services plan, as only 50% of the premiums paid related to expenses eligible for the medical expenses tax credit (METC). The total premiums paid by the employer in the year for one employee was $350. The employee did not reimburse their employer for the cost of the premiums.

     • $350 is the value of the benefit received or enjoyed
     • minus $0 because the employee does not reimburse the employer
        
     • equals $350 is the value of the benefit to be included on the T4 slip using code 40 and box 14

   • Group term life insurance premiums

     Situation: Paid regularly and does not depend on age or gender

     If the premiums are paid regularly and the premium rate for each individual does not depend on age or gender, the value of the benefit is equal to:

     • Premiums payable for term insurance on the individual’s life
     • plus Total of all sales taxes and excise taxes (do not include GST/HST) that apply to the individual’s insurance coverage
     • plus Any provincial insurance levies or sales tax (8% for Ontario, 7% for Manitoba and 9% for Quebec) that you must pay (as an employer) on some insurance premiums
     • minus Premiums and any taxes that your employee paid, either directly or reimbursed you
     • equals Value of the benefit to be included on the T4 or T4A slip

     Example – Calculations

     An employer paid $2,000 in premiums for group term life insurance for their employee as a benefit from employment in the province of Manitoba. The insurance plan has regularly paid premiums and the rate does not vary based on age or gender. As Manitoba has an insurance levy of 7% for insurance coverage, the employer paid $140 in levies on this premium. The employer had also paid $200 in sales and excise taxes on the insurance coverage. The employee did not reimburse the employer for any premiums or taxes.

     • $2,000 are the premiums paid by the employer for term life insurance for their employee
     • plus $200 is the total of all sales taxes and excise taxes (not including GST/HST) that applied to the employee’s insurance coverage
     • plus $140 is the provincial insurance levies or sales tax (7% for Manitoba) that the employer paid on the insurance premiums
     • minus $0 because the employee did not partly or fully reimburse the employer for premiums or any taxes
     • equals $2,340 is the value of the benefit to be included on the T4 slip using code 40 and box 14
     Situation: Not paid regularly or depends on age or gender

     If the premiums are not paid regularly or the premium rate for each individual depends on age or gender, you can contact the CRA at 1-800-959-5525 to request assistance on how to calculate.

   The amounts must be included in the pay period they were received or enjoyed.

3. Withhold payroll deductions and remit GST/HST

   The withholding and remitting requirement depends on the type of remuneration: cash , non-cash , or near-cash .

   If the benefit is taxable, the value of the benefit is equal to:

   • Non-cash and near-cash: Option 1

     Withhold:

     • Income tax
     • CPP
     • EI (do not withhold)

     Remit:

     • GST/HST in certain situations

   • Cash: Option 2

     Withhold:

     • Income tax
     • CPP
     • EI

     Do not remit:

     • GST/HST

   The amounts must be included in the pay period they were received or enjoyed.

    Learn how to calculate deductions and the GST/HST to remit: How to calculate – Calculate payroll deductions and contributions

4. Report the benefit on a slip

   You must report the following amounts on the slip:

   • T4 slip – Current employee

     • Non-cash and near-cash: Option 1

       • Box 14, Employment income
       • Box 26, CPP/QPP pensionable earnings
       • Code 40, Other taxable allowance and benefits
       • Code 85, Employee-paid premiums for PHSP (optional)

     • Cash: Option 2

       • Box 14, Employment income
       • Box 24, EI insurable earnings
       • Box 26, CPP/QPP pensionable earnings
       • Code 40, Other taxable allowance and benefits
       • Code 85, Employee-paid premiums for PHSP (optional)

   • T4A slip – Former or retired employee

     • Code 028, Other income (taxable income maintenance, sickness, accident, or disability insurance plan)
     • Code 118, Medical premium benefits (taxable provincial or territorial health services insurance plan)
     • Code 119, Premiums paid to a group term life insurance plan (taxable)
       $500 threshold for filing the slip does not apply

       The $500 threshold for issuing T4A slips does not apply to group term life insurance benefits:

       • Employer paying on behalf of a former employee

         If you are the employer paying on behalf of a former employee, it must be reported regardless of the amount in the calendar year.

       • Employer paying on behalf of a retiree

         If you are the employer paying on behalf of a retiree where it is the only income reported on the slip, it must be reported if the amount paid is more than $50 in the calendar year.

       • Administrator or trustee of a multi-employer plan (MEP)

         If you are the administrator or trustee of a MEP, it must be reported if the amount paid is more than $25 in the calendar year.

     • Code 135, Recipient-paid premiums for PHSP (optional)

    Learn how to report the benefit on a slip: Fill out the slips and summaries – File payroll information returns (slips and summaries)

References

Related

ARCHIVED - Meaning of private health services plan [1988 and subsequent taxation years]

Legislation