Key points
- Employer contributions to a private health services plan (health and dental, a health spending account) are generally not a taxable benefit.
- Employer-paid group term life premiums are a taxable benefit: box 14 and code 40 on the T4.
- Employer-paid accidental death and dismemberment and critical illness premiums are taxable benefits too; premiums for a periodic wage-loss replacement plan are not, but the disability benefits then are.
- Employee assistance programs for mental or physical health are not taxable.
- A qualifying short-term disability plan can lower your EI premiums through the Premium Reduction Program, with 5/12 of the savings returned to staff.
What a group plan can include
Group benefits are cover an employer arranges for its staff through an insurer or a plan administrator. Small employers in BC and Alberta usually build a plan from some of these pieces:
- Extended health care: prescription drugs, paramedical practitioners such as physiotherapists, massage therapists and psychologists, vision care, and medical equipment not covered by the provincial plan.
- Dental care: routine and major dental work, usually with an annual maximum per person.
- Group life insurance and accidental death and dismemberment (AD&D): a lump sum to an employee's beneficiary.
- Short-term and long-term disability: income replacement if an employee can't work. See our disability insurance guide.
- Critical illness: a lump sum on diagnosis of a listed condition.
- A health spending account: a yearly amount for eligible health and dental costs.
- An employee assistance program: confidential counselling and support services.
Some employers add a group RRSP or other retirement savings through the same provider; our guide to moving a group RRSP covers what happens when an employee leaves.
Insured, ASO, health spending accounts and flexible plans
| Plan type | How it works | Often used by |
|---|---|---|
| Fully insured plan | The employer pays a premium per employee to an insurer, which pays the claims and carries the risk. Premiums are reset at each renewal based on the group's claims and other factors. | Small and mid-sized employers wanting predictable costs |
| Administrative services only (ASO) | The employer pays the actual health and dental claims plus an administration fee; the administrator processes claims. Life and disability cover usually stay insured. | Larger groups, or employers willing to carry claim swings |
| Health spending account | The employer sets a yearly amount per employee for eligible health and dental expenses; unused amounts follow the plan's carry-forward rules. | Very small businesses and owner-managers, alone or alongside a basic plan |
| Flexible (flex) plan | Employees choose a level of cover or spend credits across options, sometimes including a health spending account. | Employers with staff whose needs differ widely |
With a health spending account, the tax result depends on the plan being a genuine private health services plan: it must meet the CRA's conditions, cover eligible medical and dental expenses, and be offered on terms that make sense for the employees covered. Plans set up only for an owner who is also a shareholder raise their own questions, so it is worth checking the design with your accountant before the first claim.
Which benefits are taxable for employees
This is where small employers most often get the payroll wrong. The insurer bills one premium; the tax treatment is different for each piece. The rules are in CRA's T4130, Employers' Guide: Taxable Benefits and Allowances, and setting each benefit up on payroll is what puts the right amounts on the T4.
| Employer pays for | Taxable benefit to the employee? | On the T4 |
|---|---|---|
| Health and dental (private health services plan), including a qualifying health spending account | No | Not included |
| Group term life insurance | Yes: the premiums, plus any provincial premium tax that applies, less anything the employee paid | Box 14 and code 40; former employees and retirees on a T4A under code 119 |
| AD&D, critical illness and other group sickness or accident cover paid as a lump sum | Yes | Box 14 and code 40 |
| Wage-loss replacement (short- or long-term disability) paying periodic benefits | No, not when the premium is paid; the disability benefits are then taxable when received | Premium not included; benefits reported when paid |
| Employee assistance program (counselling for mental or physical health) | No | Not included |
| Premiums in an employee-pay-all plan that the employer pays or reimburses | Yes | Box 14 and code 40 |
Taxable benefits also affect source deductions: they are added to the employee's pay for income tax, and depending on the benefit, for CPP and EI. Our payroll guide explains source deductions and remittances.
Disability plan design: who pays the premium
For disability cover, the choice of who pays the premium decides how benefits are taxed later, when an employee is at their most vulnerable.
- Employer pays all or part: no taxable benefit when the premium is paid, but the disability benefits are generally taxable to the employee when received. An employee who paid part of the premium can generally deduct their own contributions from the taxable benefits.
- Employees pay the whole premium (employee-pay-all): premiums come out of pay after tax, and the benefits are generally tax-free. If the employer pays the premium on the employees' behalf in such a plan, the amount is added to their income as a taxable benefit, which keeps the benefits tax-free.
A ten-person office. An employer pays all premiums for health, dental, life and long-term disability. On each T4, the life premium is a taxable benefit under code 40; health and dental are not taxable; the disability premium is not a taxable benefit now, but an employee who goes on long-term disability will pay tax on the benefits. If the employer instead set up the disability cover as employee-pay-all, the premium would come out of each employee's pay and future benefits would generally be tax-free. Round, illustrative facts; the plan documents decide.
Lowering EI premiums with a short-term disability plan
Employers normally pay EI premiums at 1.4 times their employees' premiums. If you provide a short-term disability plan that meets Service Canada's requirements, you may qualify for a lower rate through the EI Premium Reduction Program, run by Employment and Social Development Canada (program details for employers). The plan must:
- provide at least 15 weeks of short-term disability benefits;
- match or exceed the level of benefits under EI;
- pay benefits within 8 days of illness or injury (a waiting period of no more than 7 days);
- be available to employees within 3 months of hiring; and
- cover employees 24 hours a day.
You apply to Service Canada, which assigns your rate; you can't use a reduced rate until you have its decision. You also undertake to return five-twelfths of the savings to the employees covered, in cash or as additional benefits. Indirect benefits are tax-free only if they are a type of benefit that is itself exempt from tax, such as private health services plan contributions. Service Canada publishes the reduction rates for each plan category every year.
Before you choose a plan
- What your staff value: paramedical and dental cover, mental health support, income protection, or flexibility.
- Cost sharing: what share the business pays and what employees pay through payroll, and the tax effect of each split.
- Eligibility: waiting periods for new hires, part-time staff, and whether owners and family members are covered on the same terms.
- Payroll set-up: each benefit coded on payroll so the T4 is right in February, not fixed after an employee asks.
- Renewal: premiums on insured plans are reset at renewal, so budget for change.
Where Finvo fits
We handle the payroll and tax side of a benefits plan: setting each benefit up on payroll so the taxable ones flow to the T4 under the right codes, employee deductions for employee-paid cover, remittances, the year-end T4 and T4A slips, and recording premiums in your books. Payroll is part of our business full suite; prices are on the pricing page.
Finvo itself does not sell insurance. If you need insurance advice, we can connect you with a licensed agent from our partner network; the agent advises on plan design, products and coverage, and we cover the tax side. Insurance and other specialists are joining Finvo as contractors, so a group of consultants can work on your file together and you don't have to go from place to place. How it works.
This guide is general information for employers in BC and Alberta, checked against the CRA's T4130 guide, Service Canada and the Financial Consumer Agency of Canada on 30 Oct 2026. Rules have exceptions and can change; it isn't insurance, tax or legal advice for your business.