From the Ryan TaxDirectTM Line…
Our Client Support Services Team typically receives over 5,000 calls each year on the Ryan TaxDirectTM line. As the end of the year approaches and many organizations turn their attention to payroll tax calculations and reporting requirements, we get lots of questions about taxable benefits. Here’s a common question about employee cell phone allowances.
Taxable Benefits – Cellular Phone Allowances
Question:
We’ve decided to pay qualifying employees a flat monthly allowance to be used towards their cell phone bills. For example, we’re going to pay eligible salespersons $75 per month. Do we need to treat these payments as a taxable benefit?
Answer:
The Canada Revenue Agency (CRA) considers any cellular phone or Internet allowance provided to an employee to be a taxable benefit. This applies regardless of the allowance amount, even if it fails to cover the business portion of an employee’s cellular phone or Internet bill.
Interestingly, the provision of a cell phone or cellular data plan to an employee is generally not considered to be a taxable benefit, provided that the employee uses the phone or plan to carry out their duties as an employee. However, where a portion of the phone or plan use is personal, the fair market value of the personal use, less any amount reimbursed to the company by the employee, must be included in the employee’s income as a taxable benefit.
In addition, under a specific policy for cellular phone services, the CRA does not consider a taxable benefit to exist when an employee’s personal use of a basic plan for a reasonable fixed cost does not result in charges beyond the basic plan cost. As a result, many employee reimbursements for cellular phone charges are not considered taxable benefits. For this reason, it would be prudent to reimburse eligible employees for a percentage of their cellular phone bills, up to a maximum of $75, rather than paying an allowance in the same amount.
Note that, when the cellular phone services provided are taxable (which is most often the case), the employer is required to remit GST/HST on the value of any taxable benefit.
For more information about GST/HST and QST on taxable benefits, check out our upcoming seminar/webinar: The Sales Tax Implications of Taxable Benefits.
Have a different question? Call the Ryan TaxDirectTM line at 1.800.667.1600 or visit: Ryan Canada TaxDirect