[et_pb_section fb_built=”1″ admin_label=”section” _builder_version=”3.0.47″][et_pb_row admin_label=”row” _builder_version=”3.0.47″ background_size=”initial” background_position=”top_left” background_repeat=”repeat”][et_pb_column type=”4_4″ _builder_version=”3.0.47″ parallax=”off” parallax_method=”on”][et_pb_text admin_label=”Text” _builder_version=”3.0.47″ background_size=”initial” background_position=”top_left” background_repeat=”repeat”] Taxable Benefit
Common Definition:
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.
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Taxable Benefits and Reporting:
Benefits when paid in cash to employee add with employee’s gross earnings and subject to EI and 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
Exception:
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.
Taxable Benefits are dollar amounts paid by an employer on behalf of an employee that are subject to statutory deductions.
Taxable benefit is advantage, favor, or privilege attributed upon an employee, the cost of which is paid, in whole or part, by the employer.
Example:
Employer paid heath club membership fees of an employee
A $600 cash gift is given to an employee
Employer pays financial counseling fees of an employee
Employer pays group term life insurance premiums on behalf of an employee
Employer allows employees to purchase merchandise lower than the cost of the merchandise; the difference between the FMV (Fair Market Value) and cost paid by the employee is a taxable benefit.
Employers Contribution to RRSP
Contribution to employee’s RRSP and RRSP administration fees are considered taxable benefit to the employee. This does not include any amount that an employee contributes. Administration fees are not exempt from GST/HST.
RRSP contribution is pensionable (CPP/QPP) and insurable (EI) but not subject to tax deduction.
It is considered as non-cash benefit and therefore not insurable when employees can not withdraw any amounts from Group RRSP until they retire or terminated and the employees can withdraw the fund only for the purpose of HBP or LLP
Club membership fees, Professional fees
Taxable if it does not provide benefit to employer or required by the employment.(subject to GST/HST/QST) .
Not taxable when required by the employment
Counseling fees
Taxable for Financial and legal counseling.(subject to GST/HST/QST)
Not taxable for Physical or mental health counseling; to acquire skill for re-employment; job placement and retirement counseling
Using Frequent flyer points
FMV is a Taxable benefit; responsibility primarily lies to the employer when employer administers the program and receives the point statements. Onus is on employee to report the benefit when employee joins the program on his 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(subject to GST/HST/QST/PST); Not taxable if the spouse is engaged in company business during the trip
Air Travel
For airline employees travel on stand by basis is not taxable benefit but confirmed basis is taxable benefit. If an employee 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 Employee pays more than 50% of the economy fare on a space confirmed basis it is not taxable benefit.
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
Tuition Fees
Taxable benefit result; when fees are paid directly by the employer to the educational institute on behalf of an employee or employee’s dependent, and the employer is not benefited by the new skill an employee acquires. FMV of tuition fees are taxable benefit when it is provided free or subsidized basis ( the difference between the FMV and employee payment)
Not taxable when the tuition fees reimbursement is related to employment
Employee’s courses are not directly related to employment but an employer can be benefited from it in future. Ex. Accountant taking Administration and Management program. When it is paid to employee’s child to cover the away-from-home education
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 subject to GST/HST/QST.
Subsidized meal or no charge or unreasonably low cost meal provided by the employer is a taxable benefit and subject to GST/HST/QST/PST. If the employee 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 the employee subsidized meal is not taxable benefit.
Merchandise Discounts
If discounts are not available for all employees and the cost is less than the employer’s cost. (subject to GST/HST/QST) the difference between the FMV and employee’s payment is a taxable benefit. If discounts are available for all employees and the price is above the employer’s cost; if the merchandise is old, damaged, and soiled and it is sold below the original cost the discounts are not taxable
Purchase Discounts of Employer Asset is a taxable benefit. It occurs when purchase discount is discretionary and there is no standard practice. Subject to GST/HST/QST/PST.
Purchase loan/interest free and low-interest loan
Taxable benefit is the amount that an individual could have paid on the loan for the year at the prescribed rates of interest minus any amount of interest that he/she 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.
Prizes
FMV of the prize is taxable (subject to GST/HST/QST/PST)
Gifts and Awards
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 an employer reimburses an employee for a gift that they purchase themselves, 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 we do not consider 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.
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 employees pay part of the cost it is difference between the FMV and employee payment; No taxable Benefit results when an employee is working in remote or special work site and where all of the following condition met:
- Duties being performed are of a temporary nature
- b. employee is not expected to return daily to his principal residence from the work site; employee continues to maintain the principal residence without renting it to other persons
- c. 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
Remote work site
- The site is at least 80 km away from the nearest established community with a population of at least 1000 people
- The employee could not reasonably be expected to establish and maintain a residence at the work site
- The employee has to be in the work site for a period of at least 36 hrs.
This benefit is EI insurable when accompanied by other cash remuneration. But if it is the only form of remuneration no insurable earnings result.
Board is subject to GST/HST/QST
Short term lodging (a period less than one month) is subject to GST/HST/QST
Long term lodging (a period more than one month) is not subject to GST/HST/QST
Ex. Apartment super who receives subsidized lodging and receives cash salary as well are receiving taxable benefit. This benefit is subject to CPP/EI/TAX but not subject to GST/HST/QST
Provincial Health Care Premiums
Amount paid by an 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)
Alberta and British Columbia provincial heath care plan premium
Where 3 or more employees are employed – for BC
Where 5 or more employees are employed – for AB
This benefit is GST/HST/PST/QST exempt
Private health care/insurance plan
When an 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 the 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.
This benefit is GST/HST/PST/QST exempt
Group Term life insurance benefit
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.
AD&D when part of a life insurance coverage isn’t include as taxable benefit in Quebec; it is taxable benefit in all other jurisdiction.
Formula to calculate premium
Coverage x employer premium = Taxable Benefit
Ex.
50,000 x .50/1000 = 25/ month
25 x 12/52 = 5.77/ week
25 x 12/24 =12.50/semi-monthly
25 x 12/26 = 11.54/bi-weekly
Parking fees
- Parking fees incurred away from normal place of business and reimbursed by the employer is Nottaxable
- Parking is provided for physically disabled employee Nottaxable benefit
- A business operating from a shoppingcentreor industrial area, where parking is available to all employees and non employees, or where free street parking is available Not taxable benefit
- Fewer parkingspaceis provided and available first come first serve basis Not taxable benefit
- Flat monthly allowance Taxable allowance (subject to GST/HST/QST/PST)
6.Parking fees incurred in normal place of business Fair market value of the benefit is Taxable benefit (subject to GST/HST/QST/PST)
- Employer pays a parking contractor Taxable benefit (subject to GST/HST/QST/PST)
8.Employees park at employer premise which is located at down town or business area Taxable benefit calculated as FMV
(subject to GST/HST/QST/PST)
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