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Are Taxable Benefits Really A Benefit?

Many employers offer a range of benefits to their employees. The value of fringe benefits are considered taxable benefits and are included as income on your paycheque. This begs the question: Are fringe benefits really a benefit? It is possible to get the same benefits yourself for less?

You need to know your marginal tax rate, how much benefits will cost you and then consider other factors that may affect your outcome.

Group Life Insurance Premiums

Group life insurance premiums are based on an average premium for the group. This means that younger employees will pay a higher premium than an older employee.

A 35 year old male earning $75,000 will have a marginal tax rate of 35%. To obtain $600,000 of life insurance coverage, he can expect to pay around $600 per year for a 20-year term policy or $700 a year for the same group insurance.

Evaluating The After Tax Consequences

While it looks like the group policy is more expensive, remember that the employer pays the premium and the employee only pays income tax on the value of the premium. Therefore, the employee only pays $245 a year for the group life insurance.

From a cost perspective, group life is a much better deal. However, you should be aware that there are some limitations to group life insurance. Two main issues with group life insurance are that the insurance may stop if you lose or change jobs (you may be able to convert the policy) and the terms of the plans often change without notice.

Side Note: Medical & Dental Benefits

Medical and dental benefits are far more lucrative because these are not considered a taxable benefit. If your employer offers these benefits, there is not tax to pay on their value!

Note that if you pay your all of your own medical and dental premiums or a portion, you may be able to use these premiums towards the medical expense tax credit.

Get The Most From Your Benefits

When you use a professional accountant to prepare your taxes, you get access to a wealth of knowledge. We can help you take advantage of all of the benefits available to help you pay less tax.

Call us at (289) 288-1206 or email us to arrange an appointment to have us review your tax situation and look for opportunities to reduce your family tax bill.

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Dean Paley

A graduate of Simon Fraser University, Dean started and operated an independent painting company while perusing a degree at SFU. After graduating from Simon Fraser, Dean entered the Certified General Accountants Program of Professional studies where he obtained the professional CGA designation. After a number of successful years as the head of finance for the Canadian operations in a global financial services firm, Dean moved into a marketing role and established and launched a tax, estate and financial planning support department and service to advisors and clients. During this time Dean successfully obtained the Certified Financial Planner (CFP) designation. Dean has been a member of the Canadian Forces Reserve spanning three decades serving in the Royal Westminster Regiment (B.C.), the Military Police and later as a commissioned officer in the Cadet Instructors Cadre in Hamilton Ontario. Dean Paley CGA CFP has been interviewed and quoted in major media such as the National Post, Financial Post, Toronto Star, Canadian Business, Money Sense and Investment Executive. Dean is married to his lovely wife Deborah and has four lovely children.