All employees receive payment for their work in the form of salaries or wages. But in some cases, employers will also provide additional goods, services, and allowances to the employee as an added benefit of working for them.
It is important that, when filing your return, these benefits be properly claimed, to ensure the correct amount of tax is paid.
For this to happen, both the employee and the employer carry specific responsibilities. Before we get into those responsibilities, let’s look at some common taxable benefits. Keep in mind that this is not an exhaustive list and that all benefits are not treated the same.
- Vehicles
- Lodging
- Gifts
- Awards
- Life insurance policies
- Interest-free loans
- Meals
- Security options
- Tool allowance
- Transit passes or parking
- Tuition fees
- Cellphone
- Internet
- Child care expenses
- Moving expenses
- Medical expenses
For more examples of common taxable benefits and their treatment, visit the Government of Canada Website.
Employer Responsibilities
As an employer, there are four steps you must take to ensure that your employee’s taxable benefits are properly reported.
1 - Determine whether the benefit is taxable
As a general rule, a benefit is taxable if it provides an economic advantage to the employee that can be measured in money. You must also consider whether the recipient is the primary beneficiary.
2 - Determine the value of the benefit
The value of a taxable benefit will generally be the fair market value (FMV) of the benefit received (i.e. the price in the open market). The actual cost may be used if it reflects the FMV. You may also have to include GST/HST if the benefit is not cash remuneration or if the benefit is exempt or zero-rated.
3 - Calculate deductions from payroll
Once you have determined the value, this amount will be added to the employee’s income for the period in which the benefit was received. Next, you will have to determine whether to withhold payroll deductions, such as CPP and EI. Whether you withhold these deductions will depend on whether the benefit is cash, near-cash or non-cash.
Cash – physical currency, cheques or direct deposits.
- Pensionable – both the employer and employee must remit their portion of CPP.
- Insurable – both employee and employer must remit their portion of EI.
- Taxable – deduct income tax.
Near-cash – functions as cash or can be easily converted to cash; gift cards, securities, gold, etc.
- Pensionable – both the employer and employee must remit their portion of CPP.
- Insurable - if the employee receives employer-paid RRSP contributions where the employee can withdraw the amounts or the employee is paid in cash and receives board and lodging - both employee and employer must remit their portion of EI.
- Taxable – deduct income tax.
Non-cash – cannot be easily converted to cash; good, service, or property.
- Pensionable – both the employer and employee must remit their portion of CPP.
- Taxable – deduct income tax.
NOTE: except for security options, if the only form of remuneration provided to the employee is non-cash or near-cash (i.e. they don’t receive a salary or wages) you do not have to withhold CPP, EI or Income tax.
4 - File a return
Report the value of all taxable benefits in Box 14 of your employees’ T4s as well as in the “Other Information” area at the bottom of the T4 using code 40 unless provided a different code from the CRA.
If a third-party employer provides taxable benefits to your employee or you provide a taxable benefit to another employer’s employee, report the benefits in “Other Information” area of the employee’s T4 and not in Box 14. The code used would be for the specific benefit.
Employee
As an employee, when you receive a benefit in addition to your standard salary and wages, the information should be recorded on your T4 in Box 14 and/or the “Other Information” area. You simply have to include this information on your tax return come filing season.
For more information on Taxable Benefits and how they are treated contact us today.
