Employee taxable benefits are to be calculated and included in your employee’s income on their T4 slips each year. With the calendar year coming to a close, it is a good time to evaluate if you have any taxable benefits to report for your employees. The most common taxable benefit is the automobile benefit, but others include parking, cellphone and internet, gifts and awards.
For a comprehensive list, check out the CRA’s Employer’s Guide to Taxable Benefits and Allowances.
Automobile benefits are the most often reviewed employee taxable benefit by CRA and the most complicated to calculate. CRA does provide an online calculator (see link below) that helps in the determination of the taxable benefit amount. There are two components to an automobile benefit, the standby charge for the year, plus an operating expense benefit for the year. The standby charge is for the benefit your employee gets when your owned or leased automobile is made available for their personal use. CRA considers travel from home to work as personal use. An automobile is available to your employee if they have access to or control over the vehicle. It includes any part of a day, weekends and holidays during the calendar year.
You are allowed to calculate the standby charge at a reduced rate if all of the following conditions apply:
- you require your employee to use the automobile to perform their duties
- the employee uses the automobile more than 50% of the distance driven for business purposes
- the kilometres for personal use is not more than 1,667 per 30-day period or a total of 20,004 kilometres a year
When you (or a person related to you) provide an automobile to an employee and pay for the operating expenses related to personal use (including the GST/HST and PST), this payment is a taxable benefit for the employee.
Operating expenses include:
- gasoline and oil
- maintenance charges and repair expenses, less insurance proceeds
- license’s and insurance
Operating expenses do not include:
- capital cost allowance for an automobile you own
- lease costs for a leased automobile
- parking costs, highway or bridge tolls
If you pay any amount of operating expenses, you have to determine the operating expense benefit by using either the optional or fixed rate calculation.
You can choose to use the optional method to calculate the automobile’s operating expense benefit if all of the following conditions apply:
- you include a standby charge in your employee’s income
- your employee uses the automobile more than 50% of the distance driven in the course of their office or employment
- your employee notifies you in writing before the end of the tax year to use this method
If all of these conditions are met, calculate the operating expense benefit of the automobile at half of the standby charge before deducting any payments (reimbursements) your employee or a person related to your employee makes. In some cases, this optional calculation may result in a higher benefit amount than the fixed rate calculation.
The fixed rate for 2021 is 27¢ per kilometer of personal use (including the GST/HST and PST).
If the employee’s main source of employment is selling or leasing automobiles, the fixed rate for 2021 is 24¢ per kilometer of personal use (including the GST/HST and PST).
Note: When you use the fixed rate calculation, you still have to keep records of this benefit.
Employer-provided parking is usually a taxable benefit for an employee, whether or not the employer owns the lot. The amount of the benefit is based on the fair market value of the parking, minus any payment the employee makes to use the space.
There are some exceptions to the taxability of parking:
- If your employee has a disability, the parking benefit is generally not taxable. For more information, see Disability-related employment benefits
- There is no taxable benefit for your employee when both of the following conditions are met:
- you provide parking to your employee for business purposes
- your employee regularly has to use their own automobile or one you usually supply to do their duties
NOTE: Travel between work and home is not considered travel for business purposes.
You are not required to include parking as an employee taxable benefit in your employee’s income in the following situations:
- A business operates from a shopping centre or industrial park where parking is available to both employees and other people
- You provide scramble parking (there are significantly fewer spaces available than there are employees who want parking). For more information on scramble parking, go to Parking
Cellphone and internet
If you provide your employee with a cell phone that you own, to help carry out their employment duties, the fair market value (FMV) of the cell phone or device is not a taxable benefit. However, if you reimburse your employee for the cost of their own cell phone (or other handheld communication device), the FMV of the cell phone or device is considered a taxable benefit to the employee. If you pay for, or reimburse the cost of an employee’s cell phone service plan, or Internet service at home to help carry out their employment duties, the portion used for employment purposes is not a taxable benefit. If part of the use of the cell phone or Internet service is personal, you have to include the value of the personal use in your employee’s income as a taxable benefit. The value of the benefit is based on the FMV of the service, minus any amounts your employee reimburses you.
For cellular phone service only, we do not consider your employee’s personal use of the cellular phone service to be a taxable benefit if all of the following apply:
- the plan’s cost is reasonable
- the plan is a basic plan with a fixed cost
- your employee’s personal use of the service does not result in charges that are more than the basic plan cost
You, as the employer, are responsible for determining the percentage of employment use and the FMV. You have to be prepared to justify your position if we ask you to do so.
NOTE: If you give your employee an allowance for cellular phone or Internet services, the allowance must be included in the employee’s income.
Gifts and awards
A gift or an award that you give an employee is a taxable benefit from employment, whether it is cash, near-cash or non-cash. However, CRA has an administrative policy that exempts non-cash gifts and awards in some cases. Cash and near-cash gifts and awards are always a taxable benefit for the employee. A near-cash item is one that functions as cash, such as a gift certificate or gift card. Therefore, if you give employees gift cards as their Christmas Gift, this is taxable and should be included on their T4 as employment income. A gift has to be for a special occasion such as a religious holiday, a birthday, a wedding, or the birth of a child. The CRA policy for non-cash gifts and awards is that you may give an employee an unlimited number of non-cash gifts and awards with a combined total value of $500 or less annually. If the fair market value exceeds $500 annually, the excess amount over $500 must be included in the employee’s income. Items of trivial value such as coffee or tea, company t-shirts and mugs are exempt and do not have to be included when calculating the total value of gifts and awards given in the year. In addition to the gifts and awards policy, once every five years, you can give your employee a non-cash long-service or anniversary award valued at $500 or less, tax free. The award must be for a minimum of five years’ service and it has to be at least five years since you gave the employee the last long-service award.
CPP, EI and GST considerations
Determining the taxable benefit is only the first part of your responsibility. All taxable benefits are pensionable, which means CPP contributions must also be calculated on the taxable benefit amount. Some taxable benefits are also insurable for EI purposes and the benefits and allowances chart can help you determine which ones are. Some benefits are also deemed to include GST/HST, which must be reported on your GST return and remitted to CRA.
CRA online calculators
- Automobile Benefits Online Calculator
- Payroll Deductions Online Calculator
- Home office expenses for employees
- Other financial tools and calculators (Vehicle lease or buy, retirement income calculator, mortgage calculator, and more)
ACTION ITEM: Remember to evaluate potential taxable benefits and calculate the benefits to be included on your employee’s T4 slips.
We trust you enjoyed reading this article “Employee taxable benefits”. If you have any questions relating to this post or any other accounting or tax topics, please feel free to contact us at 403-509-3290 or firstname.lastname@example.org
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