In Canada the federal and provincial governments provide a variety of programs that offer benefits to those participants who are unable to work due to injury or illness. The following discussion provides an overview of the benefits available from these various government-sponsored plans. The features of government plans may be updated regularly and, consequently, it is important for agents to stay informed of current contribution and benefit levels as well as eligibility requirements.
Employment Insurance (EI)
Employment Insurance (EI), formerly known as Unemployment Insurance (UI), is a federal government program designed to provide support to workers who are unable to work or who have been laid off from previous employment. The sickness benefits under the plan are payable to covered employees who are unable to work due to illness, injury or quarantine. To qualify for benefits the employee must have worked a set number of hours for a set period of time and suffered a minimal reduction in income due to disability. Currently, requirements are to have worked at least 600 hours in the previous 52 weeks and suffered at least a 40% reduction in income due to the disability.
In 2014 EI paid a maximum benefit of $514 based on 55% of the average weekly eligible income. A benefit of up to 80% of the average weekly eligible income can be payable if the employee is the head of a low-income family.
Benefits start on the 15th day of disability and are payable for a maximum of 15 weeks, so EI benefits will not likely be a major portion of most clients’ disability program. Additionally, EI is a second payor to most other forms of disability benefit (CPP, QPP, Workers’ Compensation, group insurance) except personally owned disability policies. There is a dollar-for-dollar offset for other disability benefits, so no benefit would be payable if an amount equal to the maximum benefit was received from other sources (except privately owned policies).
EI contributions are based on the employee’s eligible income and are shared between the
employer and the employee based on provincial annual contribution rates. Residents of Québec have a lower contribution rate since a provincial parental insurance plan is in place (QPIP). Self-employed individuals may voluntarily choose to participate in the plan; they must pay 100% of the employee contribution but do not have to pay the employer contribution.
Canada Pension Plan (CPP)/Québec Pension Plan (QPP)
In addition to paying retirement benefits, the Canada Pension Plan (CPP) and Québec Pension Plan (QPP) also offer disability benefits to plan members under the age of 65. CPP is a contributory plan operated by the federal government for the benefit of all Canadians resident outside the province of Québec. The QPP is a Québec provincial plan operated exclusively for the benefit of Québec residents.
These plans’ disability benefit is payable to plan participants who have a disability (injury or illness) that qualifies as “severe and prolonged.” A “severe” disability is one that prevents the plan member from working in any capacity, not just the capacity in which he was working prior to the disability. A “prolonged” disability is one which will be long-term, usually permanent, and/or which is likely to ultimately result in death. Evidence of the disability must be supported by a doctor’s report.
Workers’ Compensation is provided mainly by provincially operated plans providing disability benefits to those qualifying employees who suffer a loss of employment income due to an injury incurred on the job or a workplace-related illness (such as asbestos or chemical poisoning). Contributions are paid 100% by the employer as a payroll tax. Benefits vary by province but average 80 to 90% of pre-disability net income.
Tax treatment of contributions paid and benefits received under government
The tax treatment of contributions paid and benefits received under the three public insurance and pension plans varies by type of plan and with who is the payer of the contributions. Following tables provide a brief summary of the tax rules.
Taxation of contributions paid for government programs
PLAN PAYOR TAX TREATMENT
Employment Insurance Shared by employer Deductible by employer for the
and employee employer portion
Qualifies for tax credit for the
CPP/QPP Shared by employer Deductible by employer
and employee Qualifies for tax credit from
business income for the
100% paid by
the self-employed 100% tax-deductible
Workers’ Compensation Employer Deductible by employer
Not a taxable benefit
Taxation of benefits received from government programs
PLAN TAX TREATMENT
Employment Insurance Taxed as income
CPP/QPP Taxed as income
Workers’ Compensation Tax-free to the recipient