Sole Proprietorship Benefits Are Non
Many of our clients are business and medical professionals working as sole proprietorships, where the owner and business are the same. Disability insurance benefits would be purchased by the sole proprietor as an individual disability policy using post-tax dollars. These benefits, when paid to the sole proprietor, would not have any taxes due.
It Comes Down To Whether Premiums Are Paid With Pre
Generally, whether you pay long-term disability benefit premiums with pre- or -post-tax dollars is largely what determines if your long-term disability benefits will be taxable. Be aware of how you are making your payments, of your plans policy, and what portions of the payment you are responsible for.
If your long-term disability benefits are taxable, there are tax forms you can submit to the insurance company to have them withhold taxes from your monthly disability benefits so that you will not owe taxes later. An accountant or other tax professional can help you determine how much you should withhold.
Airline Passes For Employees And Retirees Of An Airline Company
If you provide standby airline passes to a current airline employee for their personal travel, there is no taxable benefit for the employee.
If you provide space-confirmed airline passes to a current airline employee for personal travel, the passes are a taxable benefit. The value of the benefit to be included in the employees income is the fair market value of the pass , less any amount paid by the employee.
If you provide standby or space-confirmed airline passes to a retired airline employee for their personal travel, there is no taxable benefit for the retired employee.
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Examples Of Tax Deductible Fringe Benefits
Fringe benefits are excellent ways that corporations can use to attract talent, provide security for its employees, and also enjoy the value that they receive by being able to deduct the costs of many of these benefits. Forms of tax-deductible fringe benefits that C corporations can offer their shareholders and employees include:
In many of these cases, the companys contribution to the plan is tax-deductible and is not included in the employees taxable income. However, in the case of Group Term Life Insurance only up to $50,000 can currently be deducted by the company and be considered non-taxable income for the employee. Payments received through disability insurance are treated as taxable income.
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Fees Deductible Over Five Years
You can deduct certain fees you incur when you get a loan to buy or improve your business property. These fees include:
- application, appraisal, processing, and insurance fees
- loan guarantee fees
- loan brokerage and finders fees
- legal fees related to financing
You deduct these fees over a period of five years, regardless of the term of your loan. Deduct 20% in the current tax year and 20% in each of the next four years. The 20% limit is reduced proportionally for fiscal periods of less than 12 months.
However, if you repay the loan before the end of the five-year period, you can deduct the remaining financing fees then. The number of years for which you can deduct these fees is not related to the term of your loan.
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Is Disability Insurance Taxable Is Short Term Disability Taxable Income
The answer to the question are disability payments taxable? is this How disability payments are taxed depends on the source of the disability income. The answer will change depending on whether the payments are from a disability insurance policy, employer-sponsored disability insurance policy, a workers compensation plan, or Social Security disability.
How To Calculate The Amount Of The Gst/hst You Are Considered To Have Collected
The amount of the GST/HST you are considered to have collected on a taxable benefit is based on a percentage of the value of the benefit for GST/HST purposes. The percentage rate you use depends on:
- the province or territory in which the employee ordinarily reported to work
- if you are a large business on December 31, 2020, for the purpose of the recapture of input tax credits for the provincial part of the HST
- if the benefit is an automobile operating expense benefit
- some other type of benefit
Value of the benefit
The value of the benefit for GST/HST purposes is the total of the following two amounts:
- the amount reported on the T4 or T4A slip for the benefit
- if the taxable benefit is for a standby charge or the operating expense of an automobile, the amount, if any, that the employee or the employee’s relative reimbursed you for that benefit
When an employee or an employee’s relative has reimbursed an amount equal to the entire taxable benefit for a standby charge or the operating expense of an automobile and, as a result, no benefit is reported on the T4 slip, the value of the benefit for GST/HST purposes is equal to the amount of the reimbursement.
Automobile operating expense benefits
- 11% for Prince Edward Island, or 9.4% if you are a large business on December 31, 2020, for the purposes of the recapture of input tax credits for the provincial part of the HST
- 11% for Nova Scotia, New Brunswick, and Newfoundland and Labrador
- 9% for Ontario
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Life Insurance And Taxes
The proceeds your beneficiaries collect known as a death benefit are generally income tax-free.
- Individuals cannot deduct life insurance premiums on their tax returns.
- The same is generally true for businesses. Businesses cannot deduct life insurance premiums except in certain limited situations.
When you use a cash-value life insurance policy for income, the tax impact depends on your approach.
- Withdrawal. Unless you have a modified endowment contract , withdrawals up to your policys investment in the contract are generally tax-free. Your investment is generally the total amount of money you have paid in premiums. Withdrawals beyond your investment are generally taxable.
- Loan. Amounts you borrow from a non-MEC policy are generally tax-free, though tax consequences can occur upon any surrender or lapse of the policy.
- Surrender or sell. When you surrender a policy for cash, any gains you have accrued are taxed as income. In addition, a loan balance may be taxable. If you choose to sell your life insurance policy to someone else, you will not only lose the rights to the death benefit, but you may owe taxes as well.
- MEC policies. MEC policies are subject to less favorable tax rules for withdrawals and loans, as well as a potential 10% tax penalty for taxable amounts received prior to age 59 ½.
Fringe Benefits For More Than 2% Shareholders Of An S Corporation Benefit Minute
Generally, many fringe benefits provided to employees are excluded from taxable income. However, this favorable tax treatment is not available to an S corp shareholder who owns more than 2% of the stock of the corporation on any day of the corporations tax year . Section 1372 of the Internal Revenue Code requires that 2% shareholders be treated as partners in a partnership for this purpose, making them self-employed individuals instead of employees. This Benefit Minute summarizes how certain fringe benefits offered to 2% shareholders are treated.
Section 125 Cafeteria Plans/Health Savings Accounts
A cafeteria plan is a written plan established under Section 125 of the Code that allows an employee to choose between non-taxable benefits and taxable benefits . Employees can pay for qualified benefits on a pretax basis via salary reduction. It also allows for salary reduction for flexible spending accounts and health savings accounts . However, the tax benefit of salary reduction contributions is only available to employees. Since 2% shareholders are treated as self-employed individuals and not employees, they may not participate in a Section 125 cafeteria plan. This means they are ineligible to make pretax contributions for insurance, FSAs and/or HSAs. However, a 2% shareholder is permitted to contribute to an HSA on a post-tax basis and may be entitled to an above-the-line deduction on the Form 1040.
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Is Long Term Disability Taxable
Working with long term disability can be baffling, and adding tax considerations into the mix wont make it any easier. Long term disability is necessary for people who are unable to work for an extended period of time due to a disability. However, are these financial benefits taxable? This blog will go over key information on long term disability and whether or not it is taxable.
Key Person Disability Plans Tax
A key-person policy is paid for and owned by the business. An employer takes out a disability policy for a preset period on behalf of one or several irreplaceable employeesindividuals who are considered to be key persons in the companys operations. The business figures that it would suffer significant setbacks if its most valuable individual cannot work due to a disabling condition.
A company needs this compensation to cover staffing costs, project delays, profit loss, and maintain financial stability in the eyes of stakeholders. The employer pays the premium, which is not deductible, and benefits paid to the business are tax-free.
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Accommodation Or Utilities Provided By The Employer
If you provide accommodation or utilities free of charge, it is a taxable benefit to your employee. The method you use to determine the value of the benefit depends on whether or not the place in a prescribed zone has a developed rental market.
Places with developed rental markets
Some cities and towns in prescribed zones have developed rental markets. When that is the case, you base the value of the benefit for any rent or utility you provide on its fair market value.
The cities and towns in prescribed zones that have developed rental markets are:
Places without developed rental markets
In places in prescribed zones without developed rental markets, you have to use other methods to set a value on the housing benefit. The method you use depends on whether you own the residence or rent it from a third party.
If you provide both rent and utilities and can calculate their cost as separate items, you have to determine their value separately. Add both items to get the value of the housing benefit.
If your employee reimburses you for all or part of their rent or utilities, determine the benefit as explained below. Subtract any amount reimbursed by your employee and include the amount that remains in their income.
Accommodations you own
If you own a residence that you provide rent-free to your employee, report as a benefit whichever of the following amounts is less:
Group Term Life Insurance Policies Employer
This section applies to current, former, and retired employees.
Premiums you pay for employees’ group life insurance that is not group term insurance or optional dependant life insurance are also a taxable benefit.
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 an employee, former employee, retired employee, or their covered dependants.
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.
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 .
Calculating the benefit
If the premiums are paid regularly and the premium rate for each individual does not depend on age or gender, the benefit is:
- the premiums payable for term insurance on the individual’s life
- the total of all sales taxes and excise taxes, excluding GST/HST that apply to the individual’s insurance coverage
- any provincial insurance levies or sales tax that employers have to pay on some insurance premiums
Reporting the benefit
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How An Independent Insurance Agent Can Help
An independent insurance agent can be your knight in shining armor when it comes to figuring out your disability insurance. When you feel like it’s hopeless to find the right kind of coverage at the right price, they gallop in with coverage options that all fit right inside your budget.
And when it comes to getting answers to questions, like tax deductions and so on, they’ve got your back. Go on, give your local independent insurance agent a call and get going on your long-term disability insurance before its too late.
What Are Your Responsibilities
If you provide benefits to your employees, you always have to go through the same steps. If a step does not apply to you, skip it and go on to the next step:
- determine if the benefit is taxable
- calculate the value of the benefit
- calculate payroll deductions
In this guide, “employee” includes an individual who holds an office, unless otherwise noted.
Determine if the benefit is taxable
Your first step is to determine whether the benefit you provide to your employee is taxable and has to be included in their employment income when the benefit is received or enjoyed.
Whether or not a benefit is taxable depends on whether an employee or officer receives an economic advantage that can be measured in money, and whether that individual is the primary beneficiary of the benefit.
For more information on the term primary beneficiary, see paragraphs 2.14 and 2.23 to 2.25 of Income Tax Folio S2-F3-C2, Benefits and Allowances Received from Employment. For some common examples of taxable benefits, see Chapters 2 to 4 of this guide.
The benefit may be paid in cash , or provided in a manner other than cash, such as a parking space or a gift certificate. For more information and examples, go to Pensionable and Insurable Earnings.
The manner in which you pay or provide the benefit to your employee will affect the payroll deductions you have to withhold. For more information, see Calculate payroll deductions.
Calculate the value of the benefit
You do not have to include the GST/HST for:
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Employee’s Allowable Employment Expenses
Your employee may be able to claim certain employment expenses on their income tax and benefit return if, under the contract of employment, the employee had to pay for the expenses in question. This contract of employment does not have to be in writing but you and your employee have to agree to the terms and understand what is expected.
- You allow your employee to use his personal motor vehicle for business and pay him a monthly motor vehicle allowance to pay for the operating expenses and you include the allowance in the employee’s employment income as a taxable benefit or
- You have a formal telework arrangement with your employee that allows this employee to work at home. Your employee pays for the expenses of this work space on their own.
You have to fill out and sign Form T2200, Declaration of Conditions of Employment and give it to your employee so they can deduct employment expenses from their income. By signing the form, you are only certifying that the employee met the conditions of employment and had to pay for the expenses under their employment contract.
It is the employee’s responsibility to claim the expenses on their income tax and benefits return and to keep records to support the claim.
For more information on allowable employment expenses, see:
- Automobile and motor vehicle allowances and select “Facts about automobile and other vehicle, benefits and automobile allowances”
Are Disability Insurance Premiums Deductible In Canada
“Prepare for the worst and hope for the best” is a common expression. Disability should be on everyone’s list of things to prepare for. Disabilities caused by injury or illness are challenging life events that happen to anyone. Disability and other types of insurance should be part of your financial and business plan. Most of us depend on our income to support our living expenses and our families. Disability insurance provides financial security. Knowing that insurance will cover your expenses if something serious happens to you brings peace of mind. It’s hard to save up for emergencies and unexpected life events when you own a business. Undoubtedly, relying on savings can help, but it’s a temporary solution. That’s why insurance is so important because a disability can be long-term or even permanent.
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Receiving Your Disability Benefits
Whether your benefits will be taxable or not should never cause you to hesitate to file a timely, legitimate disability insurance claim if you suffered an injury or illness that prevents you from performing your occupation. If you pays the premiums for the policy you should be eligible to receive financial disability support, so do not delay in starting the claim process.
Insurance companies would prefer that you did not contact a disability lawyer, as some companies use tactics on unrepresented claimants to reduce, delay, or deny benefits. This is why it is always wise to have a trusted legal professional protecting your rights during the claim process. Our award winning legal team can help with every step of your claim, as well as help to appeal denied claims.
Is This Guide For You
Use this guide if you are an employer and you provide benefits or allowances to your employees, including individuals who hold an office, for items such as:
- automobiles or other motor vehicles
- board and lodging
- group term life insurance policies
- interest-free or low-interest loans
- transit passes
- tuition fees
If you or a person working for you is not sure of the workers employment status, either one of you can request a ruling to determine the status. If you are a business owner, you can use the “Request a CPP/EI ruling” service in My Business Account. If you are an individual, you can use the Request a CPP/EI ruling service in My Account for Individuals. You can also fill out and mail Form CPT1, Request for a CPP/EI Rulings Employee or Seft-Employed?, to the CPP/Rulings Division at the Tax Services Office in the province or territory of your residence or place of business. See the table found on Form CPT1 for the mailing addresses. For more information on employment status, see Guide RC4110, Employee or Self-Employed?
A benefit or allowance can be paid to your employee in cash or provided to your employee in a manner other than cash .
You may have to include the value of a benefit or allowance in an employee’s income, depending on the type of benefit or allowance and the reason you give it.
This guide explains your responsibilities and shows you how to calculate the value of taxable benefits or allowances.