Changes in effect for ADandD and CI insurance plans
Effective January 1, 2013, contributions made by employers for both accidental death and dismemberment (AD&D) insurance and critical illness (CI) insurance are taxable income for employees for federal income tax purpose. (Taxable benefits are non-cash benefits provided to employees by their employer and are subject to income tax.)
AD&D insurance is a limited form of life and injury insurance that pays benefits to a beneficiary if the cause of death or dismemberment is due to an accident. CI insurance is to cover the costs associated with a life-altering critical illness, such as cancer, heart attack or stroke.
The changes will not impact the tax treatment of private health services plans such as health spending accounts and medical, dental and prescription drug plans, as these benefits will continue to remain non-taxable for federal income tax purposes.
In addition to affecting employees’ income tax claims, the changes will also impact employers’ payroll systems. The premium must now be added to employees’ paycheques as income and since employers each have their own cost-sharing formulas, they will need to review the formula to ensure it complies with the new legislation.
For more information on the changes, visit the Canada Revenue website at www.cra-arc.gc.ca.