Common Definitions that you need to know:
Earning are dollar amounts that constitute employee’s pay.
Benefit are dollar amounts paid by an employer on behalf of an employee.
Allowances are usually fixed dollar amount paid to an employee through payroll cheque and therefore subject to source deduction.
Expense Reimbursement on the other hand is paid through Account Payable and therefore not subject to source deduction. The amount is not fixed and in accordance with the supporting documents provided by the employee.
Taxable Benefits are dollar amounts paid by an employer on behalf of an employee that are subject to statutory deductions.
Taxable benefit is an advantage, favor, or privilege attributed upon an employee, the cost of which is paid, in whole or part, by the employer.
Here are some common Examples:
- Club membership fees, Professional fees – If your employer paid heath club membership fees it is taxable as it does not provide benefit to employer or required by the employment and subject to GST/HST/QST . It is not taxable when required by the employment.
- Cash or near cash gift – is fully taxable if it is paid in cash or cash equivalent such as gift certificates, gold or diamond etc. regardless of value or reason. Federally if the amount of gift or award is more than $500 then the full amount is taxable. Provincially only in Quebec the amount in excess of $500 is taxable.
Two non-cash awards and two non-cash gifts per year amounting not more than $500 each is allowed as non taxable benefit . However cash gift and award is not subject to GST/PST/HST/QST and material gift is subject to GST/PST/HST/QST .
When your employer reimburses you for a gift that you purchase for yourselves, the value of the gift is a taxable benefit. CRA will not consider amounts that are reimbursed for gifts/awards to fall within the guidelines of the new gifts and awards policy. They are taxable as it is not considered that the employer is giving gifts and awards. For example, if an employee receives two gifts and the total cost of the gifts exceeds the $500 limit, CRA will allow the employer to exclude the gift that is closest to the $500 limit. If two gifts are provided valued at $400 and $300 respectively, the employer would be able to exclude the one that would be most beneficial, that is the $400 gift (including taxes). In that case, the $300 gift would be taxable. - Counseling fees – If your employer pays counseling fees it is taxable whether it is financial and legal counseling and also subject to GST/HST/QST. However followings are not taxable:
- physical or mental health counseling
- counseling to acquire skill for re-employment
- job placement and retirement counseling
- Group term Life Insurance Premiums – If your employer pays group term life insurance premiums on behalf of your it is taxable.
It is the only benefits in which employer contributions must be considered as a taxable benefit and fully included as income for tax purposes. However benefits paid out are not taxable. This benefit is GST/HST/QST exempt. The benefit is subject to PST and QST related tax on insurance premium. - Merchandise Discounts – Lot of employers allow their employees to purchase merchandise or service at lower than the cost ; the difference between the FMV (Fair Market Value) and cost paid by you is a taxable benefit.
However if discounts are available for all employees and the price is above the employer’s cost or if the merchandise is old, damaged, and soiled and it is sold below the original cost the discounts are not taxable. - Purchase Discounts - If your employer’s asset sold to employees with discount and the discount is discretionary and there is no standard practice it is taxable and subject to GST/HST/QST/PST.
- Purchase loan/interest free and low-interest loan – Taxable benefit is the amount that you could have paid on the loan for the year at the prescribed rates of interest minus any amount of interest that you actually paid on the loan in the year no later than 30 days after the end of the year.
There is no GST/HST/PST/QST on the value of the benefit. This benefit is pensionable but not insurable because it is a non-cash benefit.
Ex.A company purchase a computer on an employee’s behalf who in turns pays it back through payroll deduction on a pay period basis. - Employers Contribution to RRSP – Contribution to your RRSP and RRSP administration fees are considered taxable benefit. This does not include any amount that you contribute. It is considered as non-cash benefit and therefore not insurable when you can not withdraw any amounts from Group RRSP until you retire or terminated and you can withdraw the fund only for the purpose of HBP or LLP . Administration fees are not exempt from GST/HST.
- Tuition Fees – when fees are paid directly by the employer to the educational institute on behalf of you or your dependent, and the employer is not benefited by the new skill you acquire it is taxable. FMV of tuition fees are taxable benefit when it is provided free or subsidized basis ( the difference between the FMV and employee payment).
It is not taxable when the tuition fees reimbursement is related to employment; courses that are not directly related to employment but your employer can be benefited from it in future. Ex. Accountant taking Administration and Management program. - Using Frequent flyer points – the responsibility primarily lies to the employer when employer administers the program and receives the point statements. Onus is on you to report the benefit when you join the program on your own; Travel to International destination is considered as zero rated supply and thus not subject to GST/QST/HST/PST .
- Travel accompanied by spouse – Total benefit paid by the employer is taxable and subject to GST/HST/QST/PST; it is not taxable if the spouse is engaged in company business during the trip .
- Air Travel – If you are working for an airline and you travel on stand by basis is not taxable benefit but confirmed basis is taxable benefit. If you paid less than 50% of the economy fare and traveled on confirm basis the difference is taxable benefit. If it is a taxable benefit GST/HST/QST/PST is applied. But when you pay more than 50% of the economy fare on a space confirmed basis it is not taxable benefit.
- Parking fees – Parking fees incurred away from normal work place of business and reimbursed by your employer is not taxable.
1. Parking that is provided for physically disabled employee is not taxable.
2. A business operating from a shopping centre or industrial area, where parking is available to all employees and non employees, or where free street parking is available is not taxable.
3. Fewer parking space is provided and available first come first serve basis is not taxable benefit.
4. Flat monthly allowance however is taxable. - Transportation Passes – For transportation company employees free travel does not constitute taxable benefit. Transportation pass that is given to commute to and from the job is a taxable benefit and subject to GST/QST/HST where applicable.
- Clothing Allowance and Expense reimbursement – Unless the company prescribed uniform is for safety purposes and distinctive in nature (such as company logo inscribed) any allowance or expense reimbursement is subject to source deduction and subject to GST/HST/QST.
- Subsidized meal or no charge or unreasonably low cost meal provided by your employer is a taxable benefit and subject to GST/HST/QST/PST. If you paid any amount for that than the difference between the cost and contribution is a taxable benefit. On the other hand when reasonable (buy, prepare, and serve) cost is paid by you subsidized meal is not taxable benefit.
- Employer provided party or social event–Not taxable if it is available to all employees and cost is up to $100 per person and ancillary costs.
- Housing, boarding and lodging – FMV of employer provided housing, boarding and lodging is taxable; where you pay part of the cost the difference between FMV and your payment is taxable; No taxable Benefit results when you are working in remote or special work site and where all of the following condition met:
1.Duties being performed are of a temporary nature
2. Your are not expected to return daily to your principal residence from the work site; you continues to maintain the principal residence without renting it to other persons.
3. period of absence must exceed 36 hours include the traveling time
A declaration of exemption of employment at special work site TD4 must be submitted. - Provincial Health Care Premiums – when paid by your employer under a provincial hospitalization and medical care insurance plan is a taxable benefit. (Company compulsory deduction if the employee pays a part of the premium)
- Private health care/insurance plan – When your employer pays Private health care premium (which is company compulsory deduction if an employee pays any part of the premium) such as dental coverage, optometric expenses, hospital coverage, prescription drugs are not taxed federally and your employer premium is not a taxable benefit. They are taxable provincially in Quebec therefore employer premium added with 9% related tax is a taxable benefit. The value is added to net taxable income to calculate QPP and 9% related tax is added to the premium.
Taxable Benefits and Reporting:
Most of the taxable benefits when paid in cash to you usually add with your gross earnings and subject to EI and CIT tax; when it is paid as non cash benefit it is added to taxable earnings and subject to CPP/QPP and tax.
However most non-cash benefits are not subject to EI except the value of board of lodging if paid with cash for a pay period and Employer’s contribution to the employee’s RRSP.
There are some exceptions:
Employer-paid group benefit premium (which is company compulsory deduction) such as dental coverage, hospital coverage, prescription drugs are not taxed federally. They are taxable provincially in Quebec.