Is Disability Insurance Payments Taxable? 
In Canada , disability insurance payments are usually structured so that the payment is tax free . This applies to individual plans as well as group plans . The basic principle is , if the premium is paid with after tax dollars , then the benefit is tax free . If the premium is deducted as an expense -LRB- employee benefit -RRB- , then the benefit payment is taxable . That is why with group insurance plans the premium split is structured so that the employee pays the Long Term Disability -LRB- LTD -RRB- portion of the premium . This is done to keep the benefit tax free . Plans can be structured to provide a benefit to employees with the company paying the premium on the policies and deducting it as an expense . Certain rules need to be followed . Here is an overview : Company pays premium for coverage , gets the deduction , employee does not pay tax on the premium `` benefit '' , but any disability benefit is taxable . In order to offset the income tax , the amount of coverage the employee is permitted to apply for is increased . If you have any further questions , or feel that I could be of assistance , please do not hesitate to contact me . 