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New Income Tax Deductions...

News Bulletin

New Income Tax Deductions Required At Source for Taxable Short Term and Long Term Disability Plans

Effective January 1, 2015, at the direction of Canada Revenue Agency under the Employers’ Guide to Payroll Deductions and Remittances (T4001), insurers will be required by law to deduct and remit federal and provincial income tax from all taxable benefit payments made on or after January 1, 2015. If an employer pays any portion of the premium under an insured Short Term Disability or Long Term Disability plan the benefit payments are considered taxable.

This change only applies to plans that provide taxable Weekly Indemnity or Long Term Disability Benefits. While this should not affect the total taxes payable, it will reduce the benefit payment amount for employees who are receiving income replacement benefits and subsequently reduce any tax remittances required when filing their annual income tax return or making quarterly installment payments.

Deductions and Remittance

Income tax deductions will be based on government approved income tax tables and the basic personal exemption amount. Deductions will be remitted to the Canada Revenue Agency by the insurer on behalf of employees receiving disability benefits and will be reported annually on the tax slips that will be issued directly to disabled employees.

Important Notes

• This requirement is on a go forward basis beginning January 1, 2015.
• Deductions will apply to each benefit payment, whether the frequency is weekly or monthly.
• This requirement applies to all provinces and territories (in Quebec, provincial income tax has always been deducted from STD and LTD disability benefit payments before a payment was issued).

Communication to Employees Receiving Disability Benefits

There won’t be anything required by plan sponsors to communicate to plan members in receipt of disability benefit payments. Insurers will provide communication to current employees receiving taxable disability benefits so they can prepare and plan for the change of a reduced benefit amount. For any employees who are newly approved for disability benefits, they will be advised of this requirement at time of approving their disability claim.

As always, if you have any further questions regarding this change, please contact your Mosey & Mosey representative.

This bulletin is produced by Mosey & Mosey for information purposes only. Information contained in this publication does not constitute specific advice and should not be used independently in formulating business decisions. Please contact your Mosey & Mosey representative for specific consulting advice.
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