How is employer paid group term life insurance taxed as an employee benefit?
For 2026, employer paid group term life premiums are a taxable benefit: the premiums for the employee's coverage, plus provincial sales tax (8% in Ontario, 9% in Quebec), minus what the employee paid. Report it in T4 box 14 under code 40 and withhold income tax and CPP, not EI. Retirees get a T4A with code 119.
How do you calculate the group term life benefit?
Group term life is carved out of the general benefit rule in paragraph 6(1)(a) and taxed under its own subsection, 6(4), which adds the amount prescribed by regulation to the employee's employment income laws-lois.justice.gc.ca. For a plan with regular premiums at rates that don't depend on age or sex, the CRA's calculation is four lines
canada.ca:
| Step | What goes in | Effect |
|---|---|---|
| 1 | Premiums payable for term insurance on the employee's life | Add |
| 2 | Sales taxes and excise taxes on that coverage (not GST/HST) | Add |
| 3 | Provincial insurance levies or sales tax you pay as the employer | Add |
| 4 | Premiums and taxes the employee paid, directly or by reimbursing you | Subtract |
| Result | Taxable benefit for the year | Code 40 |
That is Regulation 2702(1)(a): premiums payable for the employee's term insurance, minus what the employee paid for it, available when the policyholder chooses to compute it employee by employee, no rate depends on age or sex, and the only amounts payable are regular premiums based on the insurance in force laws-lois.justice.gc.ca. Regulation 2701 adds the sales and excise taxes on top
laws-lois.justice.gc.ca.
The benefit goes into income in the pay period in which the coverage is received or enjoyed, so a monthly premium is a monthly benefit, not a year end lump canada.ca.
Which sales tax goes into the benefit, and which stays out?
Provincial tax on the premium is part of the benefit. GST/HST isn't: the CRA's own line reads "do not include GST/HST" canada.ca.
| Province of employment | Tax on the premium that the CRA lists | Added to the benefit? |
|---|---|---|
| Ontario | 8% | Yes |
| Manitoba | 7% | Yes |
| Quebec | 9% | Yes |
| Any province | GST/HST | No |
The rates come from the CRA's insurance premiums page canada.ca. In Ontario the 8% is retail sales tax on group insurance premiums, and employer premiums are taxable when the employee works in Ontario or is paid from Ontario, wherever the employee lives
ontario.ca. So an employee who lives in another province but works in Ontario still carries the Ontario RST in their benefit.
The CRA's Manitoba example: $2,000 of premiums, $200 of sales and excise taxes and a $140 provincial levy (7% of $2,000) give a $2,340 benefit, reported in box 14 under code 40 canada.ca.
What does $100,000 of coverage add to an Ontario employee's income?
Your client's plan insures each employee for $100,000 at a flat rate of $0.25 per $1,000 a month, the same for every age. The employee works in Toronto and pays nothing toward the plan.
| Line | Monthly | 2026 total |
|---|---|---|
| Premium: $100,000 ÷ $1,000 × $0.25 | $25.00 | $300.00 |
| Ontario RST at 8% | $2.00 | $24.00 |
| Less: paid by the employee | $0.00 | $0.00 |
| Taxable benefit (code 40) | $27.00 | $324.00 |
Payroll adds $27 to taxable income in each month's coverage period and withholds income tax and CPP on it, but not EI canada.ca. At year end, box 14 and box 26 each include the $324, and code 40 shows $324.
If the plan instead recovered $5 a month from the employee through payroll deductions, step 4 takes off $60 and the benefit drops to $264. The full premium and the RST are still added first; only what the employee actually paid comes off.
Where does the benefit go on the T4?
| T4 box or code | Group term life benefit | Why |
|---|---|---|
| Box 14, employment income | Included | It's employment income under 6(4) |
| Code 40, other taxable benefits | Included | The code for this benefit |
| Box 26, CPP/QPP pensionable earnings | Included | Non cash benefits are pensionable |
| Box 24, EI insurable earnings | Excluded | Non cash benefits aren't insurable |
| Box 22, income tax deducted | Includes the tax withheld on it | Withhold income tax on the benefit |
The CRA's reporting line for current employees is code 40, box 14 and box 26, adding box 24 only if the payment is cash remuneration canada.ca. Paying the premium to the insurer is non cash from the employee's side, so box 24 stays out. The same split appears on the T4 box 14 page, and the code list is on the T4 other information codes page.
Code 40 is already inside box 14, so the employee doesn't add it again on line 10100. If your client's premiums run past the employee's CPP ceiling for the year, the benefit still goes in box 26 up to the 2026 CPP maximums.
What changes for retirees and former employees?
Premiums you keep paying after employment ends move to the T4A under code 119, and the usual $500 T4A threshold doesn't apply canada.ca:
| Who is covered | When to report | Slip and code |
|---|---|---|
| Current employee | Always | T4, code 40 |
| Former employee | Any amount | T4A, code 119 |
| Retiree, where this is the only income on the slip | Over $50 for the calendar year | T4A, code 119 |
| Retiree, through a multi employer plan administrator or trustee | Over $25 for the calendar year | T4A, code 119 |
The calculation is the same four lines. A retiree whose former employer pays $40 a year for their coverage, tax included, with nothing else on a T4A from that employer, needs no slip for that year. A former employee who isn't retired, with the same $40, does. Provincial health premiums you pay for former employees go under code 118 instead canada.ca.
Which premiums stay out of the benefit?
Accidental death coverage. For the federal calculation, a premium for life insurance doesn't include an amount for accidental death insurance, so carve the AD&D rider out of step 1 laws-lois.justice.gc.ca.
Coverage the employees pay for in full. If the insured employees bear the full cost of the policy for the year, the benefit is nil, and separately priced extra insurance that the employees fully pay for is ignored laws-lois.justice.gc.ca. Optional top up coverage bought through payroll usually lands here.
Plans with rates that depend on age or sex, or with irregular premiums. The simple four line method doesn't apply; Regulation 2702(1)(b) uses the insurance in force each day times the plan's average daily cost of insurance for the employee's premium category laws-lois.justice.gc.ca. The CRA asks employers in this case to call 1-800-959-5525 for help with the calculation
canada.ca.
Quebec goes further. Revenu Québec treats employer contributions to a group life plan (term or other), group critical illness and every other group insurance plan as a taxable benefit, except wage loss coverage, and the value goes in boxes A and L of the RL-1 revenuquebec.ca. For an insured plan, the value is the premium and the related 9% tax, minus what the employee reimbursed and minus dividends or premium refunds you received for that employee's coverage
revenuquebec.ca. So an AD&D premium that stays off the T4 can still belong on the RL-1.
A policy your client's corporation owns on a shareholder or key person, with the corporation as beneficiary, is a different regime with no code 40 at all; see corporate owned life insurance.
Sources
Revenu Québec: contributions to a group insurance planrevenuquebec.ca
Do I add GST/HST to the group life benefit?
No. The CRA's calculation adds sales and excise taxes on the coverage but tells you not to include GST/HST canada.ca. Provincial taxes such as Ontario's 8% RST do go in.
Is the benefit pensionable and insurable?
Pensionable, not insurable. Withhold income tax and CPP on the non cash benefit but not EI, and include it in box 26 but not box 24 canada.ca. The general cash and non cash split is on the taxable benefits page.
What if the insurer refunds part of the premium?
For Quebec, a dividend or premium refund you receive reduces each employee's benefit in proportion to their share of the premiums, and any part of it you pass to an employee from your share goes in boxes A and L of the RL-1 revenuquebec.ca. Federally, under the average daily cost method, undistributed dividends and experience rating refunds reduce the plan's cost of insurance
laws-lois.justice.gc.ca.
Does the employee get a deduction for the part they pay?
No separate deduction. What the employee pays comes off the benefit in step 4, which is how they get credit for it; when they pay the full cost, there's no benefit at all laws-lois.justice.gc.ca.
General information for the tax year shown, not advice for a specific client. Confirm the facts before you file or remit.