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Are Long Term Disability Benefits Taxable in Canada

Many people are unfamiliar with how LTD income works, this can be a source of additional stress. Will you have to pay taxes on this type of income?

The answer to this isn’t simple. Long-term disability benefits are available through the Ontario Disability Support Program, the Canada Pension Plan, or a private disability insurance plan.

Additionally, Canadians must exercise caution because each type will be subject to different tax regulations.

So, are long term disability benefits taxable in Canada? Let’s find out.

What are Long-Term Disability Benefits?

If you cannot work due to an injury or illness, disability insurance benefits offer you a monthly payment. Payments normally begin after a 90-120 days waiting period. This payment continues until you turn 65 or recover.

In the event of a long-term disability, disability insurance will safeguard you from financial ruin. It provides a safety net, allowing you to keep paying your expenses and feeding your family.

Your disability income is equal to your regular wage. As a result, your disability insurance payouts increase as your income rises. So, the big question is – do you pay income tax on long-term disability in Canada?

Are Long Term Disability Benefits Taxable in Canada?

Long-term disability benefits are subject to taxation but can be complicated. This is because who pays the premiums determines who pays the tax on long-term disability compensation. As part of a group life plan, several companies provide long-term disability insurance to their employees.

You can assess whether or not the benefits under an LTD insurance policy in Canada are taxable by looking at who pays the premiums.

Long-term disability insurance premiums in Canada are normally paid in two ways. To begin, you can pay all of your premiums on your own.

Or your company may cover some or all of your premiums.

Read Also: How to Apply for Long-Term Disability?

Taxable when the employer pays the premiums

In most cases, any money you get from your employer is taxed, regardless of the form it takes. Of course, this generally includes your monthly or yearly salary. But it can also include items like lodging, one-time bonuses, and even parking supplied by your employer.

Some types of remuneration, however, are not included in your income. The amount of premiums paid by your employer to cover you under a group long-term disability insurance policy is not taxable.

However, there is a cost associated with this exclusion. You will not be paying any taxes when your employer pays for the LTD benefit premiums. But you will need to pay taxes for premiums that your employer does not cover.

Non-taxable when you (employee) pay the premiums

You, as an employee, are not taxed if you pay the entire amount of the LTD coverage. You use “after-tax” cash to pay your LTD insurance premiums. This means that you will not be able to deduct the cost of your disability insurance premiums from your income tax.

However, disability benefits received under an insurance policy for which you paid all the premiums are normally tax-free.

Are Canadian Pension Plan (CPP) Benefits Taxable?

Canadians who are disabled can apply for payments from the Canadian Pension Plan in addition to other disability benefits. To compensate for lost earnings, the CPP provides compensation to injured persons. Benefits are distributed monthly. CPP participants’ dependent children may be eligible for a child benefit.

You will need to meet the following requirements to be eligible for the program:

  • Having a long-term disability
  • Making enough contribution to the CPP before being disabled
  • Being under the age of 65

This CPP benefit you receive is taxable. However, there can be some tax cuts on federal and provincial taxes if this is the only income you have.

On the T4A(P) slip, in box 20, you will be informed of the total amount of taxable benefits you received during the tax year. You can also have the tax collected year-round, so you don’t have to bother about it together at year-end.

Is Ontario Disability Support Program Taxable?

ODSP (Ontario Disability Support Program) benefits are tax-free. This assistance program is intended to assist disabled people with day-to-day expenses such as food and housing. It also covers some medical expenditures and helps you obtain work or advance in your career. The provincial government supports the initiative.

The ODSP is designed to be a last-resort support program. This implies that in order to be eligible for benefits, you must have exhausted all other options. Searching for work, filing a claim with the Workplace Safety and Insurance Board, and applying for the Canada Pension Plan Disability Benefit are all examples.

You will need to meet the following requirements to be eligible for the program:

  • Being a minimum of 16 years old
  • Residing in Ontario
  • Proving enough financial needs
  • Having a substantial mental or physical disorder


So, is LTD taxable in Canada? You’ve probably figured out that the answer isn’t as simple as you think. Long-term disability benefits under the Income tax act are as complex as any other section of that infamously opaque regulation.

When you get payments under a long-term disability insurance policy where your employer pays the premiums, some benefits are taxable when you receive CPP disability benefits.

On other occasions, such as paying the whole LTD insurance premium yourself or receiving ODSP benefits, your benefits are not taxed.

Frequently Asked Questions

How much is long term disability taxable?

The portion of your premiums that you pay each year determines whether long-term disability benefits are taxable or not. If you pay parts of the premiums, a portion of your benefits will also be taxable. Depending on your company, insurance is deductible to a certain extent.

Will I get a w2 for long term disability?

The Internal Revenue Service (IRS) classifies your employees’ long-term disability (LTD) and short-term disability (STD) benefits as sick benefits. A list of taxable and tax-free sick pay must be included on your W2.

Is Long Term disability income considered income?

It is an earned income if you receive short-term disability benefits before retirement. On the other hand, any benefits you receive after retirement for long-term disabilities are considered unearned income.

Do I have to file taxes on disability?

The disability tax credit (DTC) is a non-refundable tax benefit that assists people with disabilities and their caregivers in lowering their income tax liability. Once a person is eligible for the DTC, they can claim the disability amount.

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