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Disability Insurance - Pay Your Own Premiums!
Self-employed? - Get Disability Insurance!
Income Tax Act s. 6(1)(f)
If you receive disability insurance, it will be tax-free if you and all other employees in the plan have paid for the insurance, or if the insurance costs for all employees was paid by the employees, reimbursed by the employer, and the reimbursement was included in the taxable income of each employee. If the premiums is deducted from the employee's income and remitted by the employer, it is considered paid by the employee. If the employer pays for all or part of the insurance, then disability insurance received will be taxable, net of any premiums paid into the plan by the employee after 1967. The following is a quote from the Canada Revenue Agency bulletin IT-428 Wage Loss Replacement Plans:
Where an employee-pay-all plan exists and provides for the employer to pay the employee's premiums to the plan and to account for them in the manner of wages or salary, the result is as though the premiums had been withheld from the employee's wages or salary.
Disability insurance costs are not tax deductible for employees. Even so, if your employer doesn't have a short or long term disability plan, it is wise to purchase one yourself, especially if you have debt or dependants.
In any case, make sure you buy disability insurance, so that you will be covered in the case of medical emergencies which result in you being unable to work and earn income.
Excerpts from IT-428 Wage Loss Replacement Plans:
14. For benefits received by an employee under a wage loss replacement plan to be subject to tax in his hands under paragraph 6(1)(f), the plan must be one to which the employer has made a contribution out of his own funds. An employer does not make such a contribution to a plan if he merely deducts an amount from an employee's gross salary or wages and remits the amount on the employee's behalf to an insurer. In these circumstances, the employee's remuneration for tax purposes is not reduced by the amount withheld and remitted by the employer to the insurer.
17. It is a question of fact whether or not an employee-pay-all plan exists. An employer cannot change the tax status of a plan by adding at year end to employees' income the employer contributions to a wage loss replacement plan that would normally be considered to be non-taxable benefits. Where an employee-pay-all plan exists and provides for the employer to pay the employee's premiums to the plan and to account for them in the manner of wages or salary, the result is as though the premiums had been withheld from the employee's wages or salary.
If you are collecting benefits under a disability insurance plan, when the benefits are tax-free, you will not receive a T4A.
If you have paid a portion of the premiums, the T4A you receive will be for the gross amount of the benefits received, but you can deduct your contributions to the plan. Instead of entering the T4A amount from box 107 on Line 10400 (line 104 prior to 2019) of your tax return, you would enter the net amount after deducting contributions you made to the plan after 1967, if you did not use them on a previous year's return.
Disability Insurance Premiums Paid by a Business
Disability insurance costs paid by employers are deductible as salaries, wages and benefits, and are included as a taxable benefit on the T4 of employees. As mentioned above, insurance proceeds received by the employee in this case will be taxable to the employee.
If you are a self-employed sole proprietor, disability insurance costs for yourself are not tax deductible, but if you make a claim on the insurance, the proceeds will not be taxable. The same is true if you are an employee paying for your own disability insurance plan because your employer doesn't provide one.
The T2125 Statement of Business or Professional Activities includes line 8690 for Insurance - this includes commercial insurance premiums for insurance on any buildings, machinery and equipment you use in your business. See
It is always best to talk to your professional tax advisor (CPA) regarding tax implications.
Canada Revenue Agency (CRA) Resources
Line 10400 (line 104 prior to 2019) Other employment income - see income-maintenance insurance plansT4001 Employers Guide Payroll Deductions and Remittances - Wage-loss replacement plans
T4002 Self employed Business, Professional, Commission, Farming, and Fishing Income: Chapter 3 - Expenses - Part 4 - Net income (loss) before adjustments - scroll down to line 8690 Insurance
IT-428 Wage Loss Replacement Plans
Income maintenance plans and other insurance plans
Tax Tips:
Pay for your own disability insurance, or make sure your employer adds the cost to your taxable income.
If you are an employee or self-employed, make sure you have disability insurance!!
Revised: October 26, 2023