Taxable Benefits for Employers in Canada

Aug 11, 2023

 

Taxable perks are benefits granted to employees that employers must add to the employees’ income each pay period to determine the total income subject to source tax deductions.

According to the Canada Revenue Agency (CRA), a benefit refers to the employer paying for or providing something personal in nature for an employee or a close relative of the employee, such as their spouse, child, or sibling. This could take the form of a reimbursement, an allowance, or the complimentary use of property, goods, or services owned by the employer.

An allowance, whether periodic or a lump sum, is an additional amount provided to employees alongside their wages to cover specific expected expenses. For example, you may allocate a fixed amount for daily meals when employees are away on business trips.

A reimbursement is an amount paid to employees to compensate them for expenses incurred while performing their job duties. In such cases, employees must submit valid receipts for the expenses.

As a Canadian employer, you need to:

1. Determine if the benefit is subject to taxation.
2. Calculate the value of the benefit.
3. Calculate payroll deductions.
4. File an information return.

For instance, if your business provides smartphones to your employees, the phones would be considered a taxable benefit, and their cost should be included in each employee’s income calculation.

How can you determine if a benefit is taxable? According to the CRA, if an employee receives an “economic advantage that can be measured in monetary terms” and is the primary beneficiary of the benefit, it is taxable. (In case of uncertainty, refer to the Canada Revenue Agency’s Benefits and Allowances alphabetical index.)

Typically, the value of a taxable benefit is considered to be its Fair Market Value—the price the goods or services would command in an open market. (Remember that you must be able to substantiate the assigned value if requested by the Canada Revenue Agency.) Additionally, you may need to include an amount for the GST/HST and PST, if applicable, in the taxable benefit’s value. The CRA’s T4130 Employers’ Guide – Taxable Benefits and Allowances provides a benefits chart detailing which taxable benefits require the inclusion of GST/HST, as well as whether deductions for the Canada Pension Plan (CPP) and Employment Insurance (EI) are necessary.

 

Examples of Taxable and Non-Taxable Benefits Examined

– Company Vehicle – If an employee utilizes a company car for personal purposes unrelated to work, it will be regarded as a taxable advantage. Maintaining a record of mileage driven for personal and business reasons is necessary to determine the benefit amount accurately. The Canada Revenue Agency (CRA) offers an online Automobile Benefits Calculator specifically for this purpose.

– Room and Board – Unless employees are temporarily engaged in work-related activities at a remote job site, providing complimentary or subsidized accommodation and meals to employees will be deemed a taxable benefit.

– Mobile Phone – If personal internet access or cell phone use remains within the limits of a basic, fixed-cost plan, it will not be considered a taxable benefit. However, if the usage exceeds these limits, the value of personal use should be calculated and reported as a taxable benefit.

– Child Care Expenses – Offering child care to all employees at the workplace at little or no cost makes it a non-taxable benefit; otherwise, it is considered taxable.

– Gifts – Cash gifts or gift certificates are taxable benefits. Non-cash gifts and awards are subject to specific regulations outlined in the Canada Revenue Agency’s rules for gifts and awards and policy for non-cash gifts and awards.
Group Insurance premiums paid by the employer are taxable benefits.

– Transit Passes – Transit passes become taxable benefits unless employees work in transit-related businesses, such as bus, train, or ferry services.

– Parking – Providing parking by the employer, under the condition where ample free parking is unavailable, constitutes a taxable benefit (based on fair market value), except for cases where the employee is disabled or requires regular use of a vehicle for work purposes.

– Medical Expenses – If the employer allocates a specific amount annually for medical expenses, it is a taxable benefit. However, employer-paid private medical, dental, or vision care plans are not taxable benefits.

– Meals – Subsidized meals in an onsite cafeteria, where employees pay a reasonable cost, are not taxable benefits. Meals or meal allowances provided for working overtime are not considered taxable benefits unless it becomes a regular occurrence (see CRA’s Examples – Overtime meals or allowances).

– Clubs and Recreational Facilities – Paying or subsidizing membership costs or fees for recreational facilities like gyms, pools, or golf courses is considered a taxable benefit. Nonetheless, if the employer offers a free or subsidized onsite facility accessible to all employees, it is not regarded as a taxable benefit. For more information, refer to the CRA Interpretation Bulletins IT-470, Employees’ Fringe Benefits, and IT-148, Recreational Properties and Club Dues.

The Canada Revenue Agency’s T4130: Employers’ Guide – Taxable Benefits and Allowances provides comprehensive information on taxable benefits, calculating payroll deductions, and filing information returns.

Are Taxable Benefits Subject to CPP and EI Deductions?

 Canada Pension Plan (CPP) contributions, EI premiums, and income tax deductions may apply to taxable benefits and allowances.

This chart displays the taxable benefits that are subject to CPP (Canada Pension Plan) and EI (Employment Insurance) withholdings, along with the corresponding codes to report them on employees’ T4 slips.

 

CBES is here to assist you; feel free to contact us for expert guidance.

 

 

 

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