Taxable benefits are benefits provided to employees that the employer has to add to the employee’s income each period to determine the total amount of income that is subject to source tax deductions.
A benefit is defined by the Canada Revenue Agency (CRA) as paying for or providing an employee (or close relative of the employee, such as the employee's spouse, child, or sibling) something personal in nature. It may be in the form of a reimbursement, an allowance, or the free use of property, goods, or services that you own.
An allowance (or an advance) is a periodic or lump-sum amount that you pay an employee on top of his or her wages to pay for specific anticipated expenses. You might provide employees a set amount for food each day when they're traveling out of town, for instance.
A reimbursement is an amount you pay an employee to repay expenses they incurred while carrying out duties of employment. In this case, an employee would provide you with proper receipts for the expense(s).
Whether a benefit is the free use of property the business owns, an allowance, or a reimbursement, as a Canadian employer you have to:
- Determine if the benefit is taxable or not
- Calculate the value of the benefit
- Calculate payroll deductions
- File an information return
For instance, if your business provides your employee(s) with smartphones, the phones are a taxable benefit and their cost will have to be figured into each employee's income accordingly.
How do you tell if a benefit is taxable or not? According to the CRA, if an employee receives "an economic advantage that can be measured in money" and is the primary beneficiary of the benefit, it's a taxable benefit. (If in doubt, consult the Canada Revenue Agency's Benefits and allowances alphabetical index.)
Generally, the value of a taxable benefit is considered to be its Fair Market Value, the price that the goods or service would fetch in an open market. (Be aware that you must be able to support the value you have assigned if the Canada Revenue Agency asks.) You will also have to include an amount for the GST/HST and PST in the value of the taxable benefit, if applicable. The CRA's T4130 Employers' Guide - Taxable Benefits and Allowances has a benefits chart that will show you which taxable benefits need to have GST/HST included, as well as whether or not you need to deduct Canada Pension Plan (CPP) and Employment Insurance (EI).
Some Examples of Taxable and Non-Taxable Benefits
- Company Vehicle - If an employee uses a company vehicle for non-work related purposes it is considered a taxable benefit. You must keep records of mileage driven for personal and business purposes and calculate the benefit accordingly. The Canada Revenue Agency (CRA) has an Automobile Benefits Online Calculator for this purpose.
- Room and Board - Free or subsidized room/board provided to an employee is a taxable benefit unless the employee is temporarily engaged in work activities at a remote job site.
- Mobile Phone - Internet access or cell phone usage for personal reasons is not considered a taxable benefit if it does not exceed what included in a basic, fixed-cost plan. Otherwise, the value of personal use must be calculated accordingly and reported as a taxable benefit.
- Child Care Expenses are a taxable benefit unless child care is provided to all employees at the place of business for little or no cost.
- Gifts - Cash gifts or gift certificates are considered taxable benefits. Non-cash gifts and awards have special rules; see 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 a taxable benefit.
- Transit Passes - Transit passes are a taxable benefit unless the employee works in a transit-related business (such as a bus, train, or ferry service business).
- Parking - If ample free parking is not available and the employer provides parking, this is a taxable benefit (based on fair market value) unless the employee is disabled or regularly needs to use a vehicle for business purposes.
- Medical Expenses - If the employer provides a designated sum for medical expenses annually 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 the employee pays a reasonable cost) are not considered a taxable benefit. Meals or allowance for meals provided for working overtime are not taxable benefits unless it is a regular occurrence (see the CRA's Examples – Overtime meals or allowances).
- Clubs and Recreational Facilities - If the employer pays or subsidizes the cost of membership or attendance at a recreational facility such as a gym, pool, golf course, etc. it is considered a taxable benefit. But if the employer provides a free or subsidized onsite facility available to all employees, it is not a taxable benefit. For more information, consult 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 further details on which benefits are taxable, calculating payroll deductions and filing information returns.
Are Taxable Benefits Subject to CPP and EI Deductions?
This Benefits Chart shows which taxable benefits are subject to CPP (Canada Pension Plan) and EI (Employment Insurance) withholdings as well as which codes you need to use to report them on employees' T4 slips.