Long Term Disability
lawyers calculate taxes for long term disability
Published: February 15th, 2023 | Last Modified:

Is income from long-term disability taxable in Ontario?

Long-term disability (LTD) insurance is a form of insurance that replaces an individual’s income while they are unable to work due to a disability. Many people, however, are confused if the money they get from LTD insurance is taxable. The tax consequences of LTD income in Ontario might be complicated, and it’s critical to understand how the Canada Revenue Agency treats it (CRA).

Navigating the legal procedure might be difficult if you have a long-term disability. Our long-term disability lawyers at Verkhovets Law are committed to providing thorough advice and representation to those who are experiencing issues with their long-term disability claims. We have the expertise and experience to assist you in understanding your rights and alternatives, as well as to ensuring that you obtain the financial assistance you require to recover. Don’t go through this alone; call us immediately for a free consultation and allow us to assist you in obtaining the justice you deserve.

Taxation of LTD Benefits

LTD benefits are taxable income in Ontario, just like any other income received from employment or investments.

  • The LTD benefits are taxed at the same marginal tax rate as the rest of your income.
  • The insurance company that provides the LTD benefits must provide a T4A slip for the benefits paid during the year, which must be included in your income tax return.
  • Any LTD benefits received will be added to your other income and used to determine your tax liability.

A Man calculates taxes on a long term disability

Disability Tax Credit

You may be able to lower your tax bill if you are qualified for the Disability Tax Credit (DTC).

  • The DTC is a non-refundable tax credit available to those who suffer a severe and long-term disability in physical or mental functions.
  • If you qualify for the DTC, you may be able to claim extra deductions or credits on your income tax return, lowering the amount of tax you owe.
  • To apply for the DTC, you must complete and have signed Form T2201, Disability Tax Credit Certificate, by a certified practitioner.

Conclusion

Long-term disability insurance income is taxed in Ontario, just like any other income received via job or investments. However, if you qualify for the Disability Tax Credit, you may be able to lower your tax payment. It is essential to seek the advice of a tax expert or a financial adviser to fully understand the tax implications of your LTD income and to ensure that you are taking full advantage of any deductions or credits to which you are eligible. In the event of an audit, it is also critical to preserve precise records of your revenue and spending.

 

Author

Mariya Verkhovets

Over many years of practicing personal injury law, she has helped thousands of injured Canadians. Whether by case settlement, tribunal, or a Court Order, Mariya can help you get the compensation you deserve. She advocates zealously for those whose voices frequently remain not heard. Prior to having her own practice, Mariya articled in a plaintiff-side personal injury firm, and worked there for a number of years after being admitted to the Ontario Bar. She continues to advocate for her clients and represent their interests in various courts and tribunals.