Tax Treatment of Accident and Sickness Benefits Generally: Underwriting, Claims & Taxation

A general principle underlies all A&S tax analysis:

Benefits paid under a life insurance policy or an accident and sickness policy to the policyholder or a beneficiary are generally not included in income under paragraph 6(1)(f) of the Income Tax Act, unless the benefits represent replacement of income that was previously funded by pre-tax employer contributions.
Employer contributions to group sickness or accident insurance plans are not added to employee income at the time of contribution (not a taxable benefit at premium payment), but benefits received are taxable to the employee.
Where the employee funds 100 percent with after-tax dollars, the benefit is non-taxable.

Memory hook, "Who paid the tax?": if after-tax money paid the premium, the benefit is tax-free. If pre-tax money (employer or salary-deduction pre-tax) paid the premium, the benefit is taxable.

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A general principle underlies all A&S tax analysis:

Benefits paid under a life insurance policy or an accident and sickness policy to the policyholder or a beneficiary are generally not included in income under paragraph 6(1)(f) of the Income Tax Act, unless the benefits represent replacement of income that was previously funded by pre-tax employer contributions.
Employer contributions to group sickness or accident insurance plans are not added to employee income at the time of contribution (not a taxable benefit at premium payment), but benefits received are taxable to the employee.
Where the employee funds 100 percent with after-tax dollars, the benefit is non-taxable.

Memory hook, "Who paid the tax?": if after-tax money paid the premium, the benefit is tax-free. If pre-tax money (employer or salary-deduction pre-tax) paid the premium, the benefit is taxable.