Your Personal Injury Lawyers
Call 1-888-404-5167
Preszler Injury Lawyers

Is Long-Term Disability Income Taxable?

As we’ve discussed before, long-term disability benefits can come from any of several sources, including private disability insurance that you or your employer pay for, the Canada Pension Plan (CPP), and the Ontario Disability Support Program (ODSP). To make matters even more complicated, each of these types of disability benefits is subject to different tax rules. So, we have to answer the question whether long-term disability income is taxable by looking at each option separately.

Of course, this is just a surface look at the tax issues raised by long-term disability benefits. For more information or answers regarding your specific circumstances, you should contact a knowledgeable Ontario tax professional.

Long-Term Disability Insurance Benefits May Be Taxable, Depending on Who Paid the Premiums

Long-term disability insurance pays benefits to covered Ontarians in the event that they become disabled. Typically, that means the insurance pays about 60% to 70% of a covered individual’s income when he or she becomes unable to work because of illness or injury, but the specific terms vary depending on the policy.

There are generally two ways in which Ontarians pay the premiums for long-term disability insurance. First, they may pay those premiums entirely by themselves. Second, their employer may pay part or all of the premiums. Who paid for the premiums for a long-term disability insurance policy in Ontario makes a difference in whether benefits under that policy are taxable.

When Benefits Are Taxable: Employer-Paid Premiums

Normally, you are taxed on any compensation you receive from your employer, regardless of what form it takes. That includes your wages or salary, of course, but it can also include things like one-time bonuses, lodging, and even employer-provided parking.

However, some types of compensation are excluded from your income. Most relevant here, you are not taxed on the amount of premiums paid by your employer to cover you under a group long-term disability insurance policy.

But that exclusion comes with a tradeoff. Although you don’t have to pay taxes on the premiums your employer pays, you will generally have to pay taxes on any benefits you receive under that policy if you become disabled.

See also: 5 Things to Know about Securing Disability Benefits in Ontario

When Benefits Are Non-Taxable: Employee-Paid Premiums

The flip side features a similar tradeoff. When you pay the premiums for your own long-term disability insurance, you do so using “after-tax” dollars. In other words, you don’t get to reduce your income tax to account for the amounts you paid for disability insurance.

On the other hand, when you receive disability benefits under an insurance policy for which you paid all the premiums, those benefits are generally not taxed.

Determining Whether LTD Benefits Are Taxable or Not

Fortunately, you don’t have to strain yourself trying to remember who paid your disability insurance premiums. If you become eligible for benefits, your insurance carrier will notify you whether your benefits are taxable and, if so, will withhold the appropriate amount of taxes from the payments it sends you.

Canada Pension Plan Disability Benefits Are Taxable

In addition to private long-term disability insurance, disabled Ontarians may also qualify for disability benefits under the CPP. The CPP pays a monthly amount of money intended to replace the income that a disabled individual can no longer earn. To be eligible for CPP disability benefits, a person must:

  • Have a severe and prolonged disability;
  • Be under 65 years old; and
  • Have contributed enough to the CPP to qualify.

Unfortunately, CPP disability benefits are taxable. The amount of taxable CPP disability benefits you received during a year will be reported to you in box 20 of a T4A(P) slip. You can request that your income tax be automatically deducted from your CPP benefit so that you won’t have to worry about paying in at year’s end.

Ontario Disability Support Program Benefits Are Not Taxable

Another public benefit available to disabled Ontarians is the ODSP. The ODSP provides various types of income supports and employment supports for qualifying residents.

To be eligible for ODSP benefits, you must:

  • Be at least 18 years old;
  • Be a resident of Ontario;
  • Demonstrate your financial need; and
  • Live with a substantial mental or physical disability.

Unlike CPP disability benefits, ODSP benefits are not taxable. However, you will still receive a T5007 that shows the amount of your ODSP benefits for the year. You will report them on line 115 of your T1, but you’ll be able to deduct them later in the form, on line 250.

See also: Ontario Long-Term Disability Incidences on the Rise

Consult With A Disability Lawyer Today

The Income Tax Act’s treatment of long-term disability benefits is as complicated as any other part of that infamously dense statute. Sometimes, benefits are taxable, as when you receive payments under a long-term disability insurance policy for which your employer paid the premiums, or when you’re receiving CPP disability benefits. At other times, your benefits are not taxed, such as when you paid for your own insurance or receive ODSP benefits.

If you still have questions about the tax treatment of disability benefits you’ve received during 2017, you should contact an experienced Ontario tax professional. If you or a loved one have had their disability benefits denied – we encourage you to book a free initial consultation with our disability lawyers today. You can book your free consultation by calling us, texting us, emailing us, filling out an online form or live chatting with us.

related videos


Disabilities That May Warrant Disability Claims

Filing a Disability Claim

What to do If Denied Disability Benefits
Call us now at

151 Eglinton Ave W,
Toronto, ON
M4R 1A6
Fax: 1-855-364-7027
Toll Free: 1-888-608-2111
4145 N Service Rd
Burlington, ON
L7L 4X6
Fax: 1-855-364-7027
Toll Free: 1-888-608-2111
2 County Ct Blvd #400,
Brampton, ON
L6W 3W8
Fax: 1-855-364-7027
Toll Free: 1-888-608-2111
105 Consumers Drive
Whitby, ON
L1N 1C4
Fax: 1-855-364-7027
Toll Free: 1-888-608-2111
92 Caplan Ave #121,
Barrie, ON
L4N 0Z7
Fax: 1-855-364-7027
Toll Free: 1-888-608-2111
380 Wellington St Tower B, 6th Floor,
London, ON
N6A 5B5
Toll Free: 1-888-608-2111
2233 Argentia Rd Suite 302,
East Tower Mississauga, ON
L5N 6A6
Toll Free: 1-888-608-2111
1 Hunter St E,
Hamilton, ON
L8N 3W1
Fax: 1-855-364-7027
Toll Free: 1-888-608-2111
459 George St N,
Peterborough, ON
K9H 3R9
Fax: 1-855-364-7027
Toll Free: 1-888-608-2111
22 Frederick Street,
Suite 700
Kitchener, ON N2H 6M6
Fax: 1-855-364-7027
Toll Free: 1-888-608-2111
116 Lisgar Street, Suite 300
Ottawa ON
K2P 0C2
Toll Free: 1-888-608-2111
10 Milner Business Ct #300,
Scarborough, ON
M1B 3C6
Toll Free: 1-888-608-2111
*consultation offices

DISCLAIMER: Please be advised that the header image and other images throughout this website may include both lawyer and non-lawyer/paralegal employees of Preszler Injury Lawyers and DPJP Professional Corporation and unrelated third parties. Our spokesperson John Fraser, or any other non-lawyer/paralegals in our marketing is not to be construed in any way as misleading to the public. Our marketing efforts are not intended to suggest qualitative superiority to other lawyers, paralegals or law firms in any way. Any questions regarding the usage of non-lawyers in our legal marketing or otherwise can be directed to our management team. Please also note that past results are not indicative of future results and that each case is unique and that case results listed on site are from experiences across Canada and are not specific to any province. Please be advised that some of the content on this website may be out of date. None of the content is intended to act as legal advice as each situation is independent and unique and requires individual legal advice from a licensed lawyer or paralegal. For legal advice on your individual situation – we can provide legal guidance after you have contacted our firm and we have established a lawyer-client relationship contractually. Maximum contingency fee charged is 33%. Finally, our usage of awards and logos for awards does not suggest qualitative superiority to other lawyers, paralegals or law firms. All awards received from third party organizations have been done so through their own reasonable evaluative process and do not include any payment for these awards except for the use of the award logos for our marketing assets. We are also proud to service additional provinces like Alberta, British Columbia and Nova Scotia.