Wage Loss Replacement Benefits
As a rule, wage loss replacement benefits are benefits paid in the following circumstances:
- They are paid to a beneficiary by an insurer under a wage loss replacement plan (health insurance, accident insurance, disability insurance or income insurance) to compensate for the loss of all or part of the beneficiary's employment income.
- The beneficiary's employer contributed to the insurance plan.
Employees can also receive wage loss replacement benefits for the loss of all or part of their employment income under an insurance plan administered or provided through an employee life and health trust to which the employer contributed.
The amounts you pay to compensate for the loss of all or part of an employee's employment income are generally considered to be employment income if you are not an insurer.
They are considered to be wage loss replacement benefits, however, if the plan is based on insurance principles, that is, if the funds are accumulated, usually in the hands of a trustee or in a trust account, and are sufficient to guarantee the payment of potential claims.
Any amounts paid by a third party under an Administrative Services Only (ASO) contract that does not meet insurance principles are considered to be employment income.
Wage loss replacement benefits are subject to source deductions of income tax.
Wage loss replacement benefits are not subject to QPP contributions when paid by an insurer. All the same, wage loss replacement benefits constitute pensionable salary or wages for the beneficiary. Consequently, a beneficiary who has not already made the maximum QPP contribution for the current year may make an optional QPP contribution on the benefits when filing his or her income tax return (line 445).
Wage loss replacement benefits are not subject to Québec parental insurance plan (QPIP) premiums unless:
- the employer pays the benefits directly to an employee under a plan funded in part by the employer;
- an employee receives benefits from a third party under a plan funded in part by the employer and in respect of which the employer controls certain terms and conditions and determines, either directly or indirectly, eligibility for benefits.