Are employer paid MSP premiums a cash taxable benefit?

I’ve written about this previously, and that article sparked a few comments and some questions. It seems not everyone agrees with my understanding that employer paid MSP premiums are a cash taxable benefit, subject to EI premiums.

The distinction between cash and non-taxable taxable benefits hangs on what the “benefit” received by the employee actually is.

Consider these two possible situations. One, an employer directly purchases a television and gifts this to an employee. Two, an employee purchases a television set and is reimbursed for this expense by the employer.

In these circumstances, how do we distinguish what the “benefit” is? In both cases the employee ends up with a television and in both cases employer cash is involved.

Quoting from the 2016 edition of the CRA’s T4130, the Employers’ Guide: Taxable Benefits and Allowances, a ‘non-cash (or “in kind”) benefit is the actual good, service, or property that you give to your employee. This includes a payment you make to a third party for the particular good or service if you are responsible for the expense.’

As I read this, where the employer provides the “benefit” itself directly to an employee, the thing itself – the good or service – is the benefit. In our television example, above, where the employer purchases the television and provides it to an employee, the “benefit” is the television. As such, that’s a non-cash benefit. This would not change for employer purchases made online, where the online vendor delivers the television set directly to an employee. Here the online vendor is acting as the employer’s agent.

Similarly, as I read the quote above, where the employer pays an expense that would otherwise fall on an employee, the “benefit” is the payment rather than whatever good or service the employee received out of that payment. As such, reimbursing an employee for the employee’s personal expenditure on a television is a cash taxable benefit.

Given this, how do we classify the taxable benefit from the employer payment of MSP premiums: are these non-cash or cash taxable benefits?

MSP premiums pay for the medical coverage provided to all BC residents by the BC government, under the terms of the province’s Medicare Protection Act. Enrollment in MSP, and coverage under it, is mandatory for all BC residents. While MSP premiums are an individual expense, employers may establish a group plan, under which the employer remits MSP premiums to the government. In some cases, what are remitted are employee-paid premiums, deducted at source by the employer. In other cases, the employer pays these premiums itself, on the employee behalf, as an employer paid taxable benefit.

There are two clear differences between the television set above, given by the employer, and the employer payment of MSP premiums on behalf of employees.

First, MSP coverage is not provided by the employer. The province provides MSP coverage to residents. Employers don’t provide MSP coverage to employees. In this regard, MSP coverage is different from other forms of insurance coverage, such as group term life insurance, where the employer is the explicit plan sponsor. Employers are not the plan sponsor for MSP, the BC provincial government is.

Second, MSP premiums are an explicit employee personal expense. MSP premiums are assessed on BC residents who enroll in MSP and, under sub-section 7.2(5), residents are individually liable for the resulting premiums.

When employers agree to form a group plan, that doesn’t change the underlying employee nature of this expense. A group plan is just an employer agreement to pay the MSP premiums that would otherwise be owing by employees.

There is language in the Medicare Protection Act that says employers are liable for the MSP premiums owing, when group plans are established. This liability extends to directors and officers who may personally be liable if the employer has failed to remit MSP premiums under the group plan. This is no different than language (section 21) in the BC Employment Standards Act  that deems group benefits, deducted at source by the employer, and not remitted to a 3rd party, as wages that may be recovered by an order against the employer, an officer or a director.

This language just says that if employers agree to pay MSP premiums, in a group plan, and then do not, they may be held personally liable. This includes MSP premiums deducted from employees, MSP premiums paid by the employer as a taxable benefit and premiums owed by employees prior to them joining or prior to the establishment of the group plan itself.

This employer liability for the payment of MSP premiums in a group plan doesn’t alter the nature of these payments as an employee expense. The clearest illustration of this is the CRA’s position on wage loss replacement plans (see paragraph 19 of IT-428). That paragraph makes a distinction between the underlying responsibility for premiums (in employee-pay-all plans) versus the actual employer payment of these during periods where there is no gross pay from which to deduct employee premiums. I would argue that this same distinction exists for MSP premiums: the employer agreement to a group plan doesn’t change the nature of these payments as an employee expense.

Based on these two points: that the employer does not provide MSP coverage and that MSP premiums are an employee personal expense, my conclusion is that employer paid MSP premiums are a cash taxable benefit, subject to EI premiums.

Alan McEwen is a Vancouver Island-based HRIS/Payroll consultant and freelance writer with over 25 years’ experience in all aspects of payroll. He can be reached at armcewen@shaw.ca or (250) 228-5280. If you like these articles, please sign up to my email list to be notified of future postings.

About Alan R. McEwen

HRIS/Payroll consultant and freelance writer
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