Your employees and those of your small business clients are already covered by Canada’s universal health insurance. But what if your small business clients want to offer more extensive medical benefits, such as vision plans or life insurance, to their employees? The type of benefits they offer have tax consequences, for both your clients and their employees, and the rules governing these benefits are rather complex.
Premiums for Medical Benefits
When an employer pays medical premiums on behalf of employees, some of those payments count as taxable benefits to the employee, and some do not. Medical Services Plan premiums, yes, those are taxable benefits. But premiums for dental plans, prescription coverage, private extended health plans, and vision care plans don’t count as taxable benefits to the employee (as long as the plans pay just the costs of medical expenses that are claimable as tax credits).
Premiums for Disability Insurance and Sickness Income Maintenance Plans
Even if your small business clients offer these benefits to their employees, if the employees pay the premiums, the benefits are tax-free. Typically, employees make these payments through the employer withholding part of their net pay. If the employer pays the premiums, the employee may be taxed on a portion of the benefit.
Premiums for Life Insurance
Your small business clients may offer some of their employees life insurance plans for the duration of their employment. These are usually group term life insurance plans with the employee’s family or spouse as the beneficiary. While the premiums the employer pays for such a plan are indeed taxable to the employee, any payment from the life insurance plan upon the death of an employee is not taxable.
Taxability of Counselling and Mental Health Services
If your small business client provides or pays for counselling services for employees, the employee doesn’t receive a taxable benefit. Tax-free counselling services are limited and include only the following:
- Retirement counselling
- Re-employment counselling
- Counselling related to the employee’s physical health
- Counselling related to the employee’s mental health
Which Medical Benefits Are Most Appropriate for Your Clients to Offer?
Many employees would rather receive medical benefit plans through their employer than have to seek out the services on their own. That means your small business clients may be able to attract the employees they want by offering such plans. The situation is somewhat different for your clients in Quebec, which offers prescription drug coverage that most employers include automatically in their benefits package.
As you consult with your small business clients regarding which benefits are most advantageous to offer, encourage them to pay attention to the needs and stage of life of their employees. Younger employees are less likely to be interested in life insurance, which can be a very attractive perk to older employees who already have families and want to protect them in the event of a sudden loss of income.
Many employees consider benefits the second most important factor in any job offer (after salary). When your small business clients understand which benefits they should offer and the tax implications of various benefits, they’re in a better position to make wise choices for their business’ future.