New tax rules in place for wage loss replacement plans

Bill C-45 outlines full impact of changes for employers
By Alan McEwen
|Canadian Payroll Reporter|Last Updated: 12/17/2012

The 2012 federal budget, delivered on March 29, announced changes to the income tax treatment of wage loss replacement plans (WLRP). With the release of Bill C-45, introduced on Oct. 18, we can now describe the full impact of these changes.

But before we describe these, it’s important to put them in context. WLRPs provide employees with replacement income when they can’t work due to illness or accident. Employer contributions to group WLRPs have not been taxable income. Instead, where there have been employer contributions, the benefits received have been taxable, less a deduction for the amount of any employee contributions.

Where a WLRP is provided to individual employees in other than a group plan, this treatment is reversed — the employer contributions are a taxable benefit, and any benefits received are tax-free.