Throughout the year a business will typically give their employees gifts or freebies to reward a job well done or to show appreciation for their efforts during the year. In addition, an employer may provide many of their employees with items that may help them complete their tasks and may also be useful for their personal lives, for example a company car. Any time a gift, freebie or tangible benefit is provided to an employee during the year, it may be
considered additional compensation beyond their regular salary or wages – in other words – a taxable benefit. If this is the case, a value will have to be assigned to the item provided and this will have to be reported as income by the employee – a secondary gift. Often the calculations necessary to determine the value of a taxable benefit are complex and the timelines for reporting and remitting the tax associated with these benefits is short. To minimize the unexpected joy that a payroll team may have to deal with when calculating taxable benefits an early start to the process is suggested.
The starting point for this process is to create an inventory of all the items provided to employees during the calendar year that may give rise to a taxable benefit. Once this exercise is completed, the organization must determine if any of these items actually constitute a taxable benefit. The federal Income Tax Act ("ITA") requires the amount of the benefit, including any applicable sales taxes, to be added to the employee's income in the year the benefit was awarded. Additionally, as a final step in this process, the employer must establish whether GST/HST or QST is required to be remitted on the taxable benefits granted to employees.
An employer who confers a taxable benefit of property or service on an employee, generally, is required to include GST/HST or QST on the total value of the benefit in its net tax calculation. Unfortunately, the calculations to determine the sales tax component of these benefits is often overlooked and a failure to remit GST/HST or QST on the value of taxable benefits becomes an audit issue for the organization. To make a confusing task even more complicated, there are some exceptions which may exempt an employer from the necessity of remitting sales tax on specific taxable benefits.
With a view to assisting clients in minimizing their potential sales tax liability exposure in this area, Ryan prepares this yearly digest of the latest rules surrounding the application of GST/HST and QST to taxable benefits. All personnel responsible for overseeing taxable benefit calculations for their organization are urged to review these rules prior to commencing the taxable benefit process – the greatest gift of all. Introduction / opening paragraph