Ontario’s Latest Rules On The Taxing of Long Term Disability Benefits

Before January of 2015, a resident of Ontario that received long term disability (LTD) benefits had those funds taxed when filing his or her income tax returns. Today though, a ruling from the Canada Revenue Agency has changed the approach to taxing such benefits.

The focus of the new rules

The new rules focus on the identity of the person that gets held responsible for paying the premiums. If the recipient’s employer is paying the premiums, then the benefits are taxed when they get issued. The value of the tax gets deducted from the worker’s paid benefit.

In the above case, each benefit serves as a replacement for lost wages. The employer has arranged for delivery of such funds to any employee that is temporarily sick or disabled. The employer does not have to pay a tax on funds that are delivered to others as a service.

If the person that purchased the LTD coverage pays the premiums, then that policy holder does not have to pay any tax. That same policy holder must make a full payment, whenever a premium comes due. Understand that the policy holder has paid more than the premiums, in order to receive the delivered benefits. However, if the plaintiff has a reason to believe that they deserve compensation, then consulting with a personal injury lawyer in Chatham is important.

Comparing the size of each benefit

If a benefit’s purpose ensures the employee of wage replacement, it equals 70% of the same employee’s salary for the time period stated by the agency responsible for workers’ compensation. Alternatively, if a benefit comes from a private insurance company, then it equals the total amount of the policy holder’s lost wages for the time period stated in the policy.

Other features of LTD coverage

Such coverage ensures the availability of income replacement, if the person that has purchased an LTD policy can no longer carry-out the tasks associated with his or her current job. That coverage is guaranteed for a given length of time, normally 2 years.

Following that 2-year interval, the disabled policy holder must show that he or she remains unable to tackle any job that matches with the same policy holder’s experience and education. If the policy holder appears capable of tackling jobs that match with his or her experience and education, then that alters the plans for delivery of benefits.

Under the circumstances described above, the company that sold the LTD policy would not continue a delivery of benefits, unless the recipient/policy holder had agreed to undergo training. Once properly trained, the same recipient would be required to seek an employer that was in need of someone with the recipient’s level of skill, experience and education. So, a worker could expect to get more money with an LTD policy, but, eventually, the benefit’s anticipated arrival could get cut off.