Effective January 1, 2015, Carriers will update how taxable long-term and short-term disability benefits are administered to align with new requirements outlined by the Canada Revenue Agency (CRA).
Previously, plan sponsors or plan members could select other options for withholding tax such as a specific amount or percentage, or defer them until annual taxes are filed. The CRA now requires that disability benefits paid from these plans be taxed at the source using payroll tax tables and basic personal exemption amounts
Plan members receiving taxable disability benefits who do not have income tax deducted at the source may begin seeing a lower net disability benefit payment as a result of the tax withholding. If a member selected a flat tax amount or percentage the withholding tax will be changed to align with the applicable payroll tax tables. This may result in a change to the member’s benefit payments
Each carrier will handle this differently; however, the following guidelines have been proposed:
a) For any new claimants, tax will be deducted from the disability payments as of October 2014.
b) For anyone currently receiving a disability payment, this change will be phased in between October through December. The claimant will be notified in advance.
c) For those claimants that already have tax deducted from their disability payments, and adjustment may need to be made, and again, the claimant will be notified in writing of any changes.
As this is a government-imposed change, amendments to your program will not be necessary but you should check with your Group Benefits provider to find out how they plan to implement the new rules.
For Quebec members, provincial income tax has always been deducted from the disability benefit payments prior to being issued; however, federal income tax will now be deducted based on the CRA requirements.