Any time a gift, award, perk, or other benefit is provided to an employee in Canada, it may be considered additional compensation beyond their regular salary or wages – a taxable benefit. When taxable benefits are provided by employers to their employees, in addition to having to be reported as additional income for the employees, these benefits may also trigger a required GST/HST and/or QST remittance on the value of the benefit. Ryan has prepared an overview of 10 common taxable benefits that can lead to remittance requirements, as listed below:
Personal use of an employer-provided motor vehicleEmployers providing a company-owned or leased automobile to an employee or someone related to the employee generally results in a taxable benefit for the personal use portion of the automobile.
Employer-provided parkingEmployer-provided parking generally constitutes a taxable benefit to the employee when the parking space is assigned or guaranteed.
Employee reward programsEmployee reward programs, where employees receive points that can be redeemed for items or gift cards, are generally considered taxable benefits upon employee point redemption.
Trips, prizes, gifts and awardsA holiday trip, an all-expenses paid vacation, or any prize, gift, or award an employer gives to an employee is considered a taxable benefit, subject to an administrative policy for gifts and awards.
Entertainment and sports ticketsGenerally, the value of tickets to a sporting event, concert, the theatre, or other entertainment event is considered a taxable benefit when given to an employee for personal use.
Board and lodging expensesFor income tax purposes, board and lodging expenses are specifically identified as taxable benefits. This includes board and lodging regularly provided to hotel employees, domestic help, and farm workers.
Cell phone and internetWhere cell phone or internet services are provided to an employee and partially used for personal purposes, the value of personal use should be included in the employee’s income as a taxable benefit.
ToolsWhere an employer reimburses an employee for the cost of tools that the employee is required to have to perform their work, the payment amount must be included in the employee’s income.
Counselling servicesFees paid by an employer to provide services such as financial counselling or income tax preparation for an employee are usually considered a taxable benefit.
Subsidized mealsSubsidized meals provided to an employee (e.g., in a cafeteria) are considered a taxable benefit if the employee does not pay a reasonable charge for the meal.
Interested in learning more about these taxable benefits?
Taxable benefits can create multiple Canadian tax issues for an employer:
- For income tax purposes, determining if a benefit provided to an employee is taxable can be challenging. Any good or service that is personal in nature and has an economic value can be considered a taxable benefit, regardless of whether it is provided to the employee directly, arranged through a third party, or paid through an allowance or expense reimbursement.
- Once identified, the value of an employee’s taxable benefit must be correctly calculated. Generally, this will be based on the fair market value of the benefit, including any GST/HST and PST payable by the employer (or PST that would have been payable had the employer’s purchase not been exempt). The employer is required to add the value of the taxable benefit to the employee’s income, calculate the appropriate payroll deductions, and report the value of the benefit on the employee’s T4 or T4A information slip.
- Overlooking the requirement to remit GST/HST or QST on the value of certain taxable benefits provided during a calendar year is a common audit exposure and can lead to an assessment, as this requirement is routinely audited by both the CRA and Revenu Québec.
The deadline to issue employee T4 and T4A slips for 2022, including taxable benefit information, is February 28, 2023.
The GST/HST or QST remittance related to taxable benefits must be reported on the return covering the last day of February in the year following the previous calendar year, so now is the time to ensure your organization is compliant for 2022. For monthly filers, the sales tax remittance will be due with the February return on March 31, 2023.
There are several ways Ryan can help manage your organization’s Canadian taxable benefits compliance. Connect with our professionals regarding your taxable benefits questions to find out how we can assist.
Reach out to Ryan TaxDirect for answers at email@example.com or 1.800.667.1600.