News and Insights

CRA GST/HST Memoranda re: Taxable Benefits

Tax Development Dec 01, 2011

The Canada Revenue Agency has issued two new GST/HST Memoranda to explain how GST/HST applies to employee and shareholder benefits as required under the Excise Tax Act (ETA).  GST/HST Memorandum 9.1, “Taxable Benefits (Other than Automobile Benefits)” discusses the application of GST/HST to employee and shareholder benefits, other than automobile benefits, and replaces GST Memorandum 400-3-2, “Employee and Shareholder Benefits”, which was issued February 19, 1992.  GST/HST Memorandum 9.2, “Automobile Benefits” specifically addresses how GST/HST applies to automobile benefits available to employees and shareholders under the Income Tax Act (ITA).  

Under the ETA, salaries, wages, commissions and other monetary remuneration made to employees and directors are generally not subject to GST/HST.  However, non-monetary compensation of employees and shareholders, which give rise to a taxable benefit under the ITA, may be subject to GST/HST.  Under the ITA, GST/HST is added to the value of a taxable benefit to ensure the person receiving the benefit is treated for tax purposes as if he or she purchased the supply directly.  Typical examples of taxable benefits subject to GST/HST include the use of passenger vehicles, subsidized residential accommodation, subsidized meals, membership dues, trips, vacations and gifts over $500.  

Subject to certain exceptions, section 173 of the ETA requires GST/HST registrants to include tax deemed collectible and collected on the total value of the taxable benefit and any reimbursements (in the case of automobile benefits) in the registrant’s net tax calculation.  The tax is deemed to have been collected on the last day of February of the year immediately following the calendar year in which the taxable benefits were required to be included in an individual’s income.  

In order to determine whether section 173 applies to a specific supply of property or service to an individual, the following must be determined for income tax purposes:

  • whether or not there is a taxable benefit;
  • what provision of the ITA applies to that benefit;
  • the value of the taxable benefit;
  • in the case of automobile benefits, the value of any reimbursement that reduced the amount of the taxable benefit that otherwise would have been required to be included in that individual’s income; and
  • in the case of automobile benefits to shareholders, the provision of the ITA that would have applied if the shareholder had received the taxable benefit as an employee.  

GST/HST Memoranda 9.1 contains 3 appendices, including Appendix C which illustrates the tax fractions that should be used to determine the GST/HST deemed collectible on taxable benefits, other than automobile benefits, based on location, for taxation years 2006 onward.  

GST/HST Memoranda 9.2 also includes 3 appendices.  Appendix A contains a table and accompanying decision tree charts to help a registrant determine when there is a requirement to remit GST/HST on automobile benefits, depending on whether the vehicle is purchased or leased and whether the registrant is an individual, partnership, financial institution or other type of registrant.  Appendix B shows the applicable automobile operating costs benefit percentages, based on location and whether or not the registrant is considered a large business, for taxation years 2006 and later.  Similarly, Appendix C shows the tax fraction of the total consideration used to calculate the GST/HST deemed collectible for the standby charge benefit.