Employer-paid perks for select staff may prompt taxable benefits
Offering enhanced disability coverage to executives or shareholder-employees could disqualify a plan from group insurance status and create taxable benefits, according to a recent CRA technical interpretation reviewed by Insurance Portal.
The interpretation (CRA View 2018-0744821E5-T) focused on a case where a corporation maintained a standard employee-paid group insurance plan and then proposed a supplemental disability plan exclusively for two executives—one of whom was a majority shareholder.
In assessing the structure, the CRA found that the supplemental plan failed to meet group insurance requirements due to its limited coverage and benefit levels not available to other employees.
As explained by Insurance Portal, the CRA requires uniformity in benefit and cost-sharing arrangements across covered employees.
When enhanced benefits are offered only to a select few—particularly executives or shareholders—the agency may no longer consider the plan a group arrangement but rather a series of individual insurance policies.
The CRA defines a “group insurance plan” not by statute, but administratively as a contract between an employer and at least two employees covering illness, accident, or maternity.
However, Insurance Portal reported that mere inclusion of two employees does not suffice.
The CRA looks for consistency in coverage and employer contributions across all members. If these elements vary significantly, especially when tailored for senior staff, the employer-paid premiums may trigger tax obligations.
As per Insurance Portal, premiums under such non-qualifying plans would be considered taxable under paragraph 6(1)(a) of the Income Tax Act.
The only exception—subparagraph 6(1)(a)(i)—applies when employer-paid premiums go into a qualifying group sickness or accident plan designed to compensate for loss of employment income.
In the CRA View, this exception did not apply to the executive-only plan.
The analysis becomes more complex when the recipient is also a shareholder.
Insurance Portal noted that the CRA presumes benefits to shareholder-employees are provided due to share ownership rather than employment—especially when the individual holds control or influence in the corporation.
Under subsection 15(1), this means the benefit is included in the shareholder’s income and the company loses the deduction.
To rebut this, the employer must show the benefit is tied to employment—typically through documentation, benchmarking, or offering similar benefits to other staff.
The CRA’s interpretive framework, as summarized by Insurance Portal, underlines that group insurance status is determined by facts and structure.
Plans with varying benefit levels or contribution ratios risk being reclassified, which has tax implications both for the employee and employer.
Supporting this position, Sun Life confirmed that employer-paid premiums for coverage such as group life, accidental death, and critical illness are taxable.
It added that employer-paid disability premiums are not taxable, but future benefits from those plans will be. If employees instead pay the premiums themselves with after-tax income, benefits received would be tax-free.
Further administrative guidance from CRA (as of June 11, 2025) reiterates that contributions to non-group plans—even those involving life, sickness, or disability coverage—are treated as taxable benefits.
Insurance Portal advised that plan sponsors aiming to maintain group insurance tax advantages should ensure benefit uniformity, avoid executive-only enhancements, and maintain documentation aligning with CRA expectations.
Failing to do so may expose both employer and employee to unexpected tax liabilities.
