Taxable Benefits: Cell Phone & Internet Service

In this edition of Did You Know? we look at the rules that determine when an employee earns a taxable benefit when a company pays for cell phone or internet service. If you would like to know more, give us a call or send us an e-mail and we can evaluate your situation!

If you provide your employee with a cellular phone or internet service at home in order for them to carry out their employment duties, the business use is not a taxable benefit. However, you must included the value of the personal use in your employee’s income as a taxable benefit.

Calculating the taxable benefit

As the employer, you are responsible for determining the percentage of business use and the fair market value (FMV). You must be prepared to justify your position if requested by the Canada Revenue Agency (CRA). The value of the benefit is based on the FMV of the service, minus any amounts your employee reimburses the company. You can only use your cost to calculate the value of the benefit if it reflects the FMV. This means that if the employee was to purchase comparable services as an individual, what would they pay.

Exception for company provided cellular phones

If all three of the following criteria are met, the personal use of the cellular phone service is not considered to be a taxable benefit:

• 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.

Do you give your employee an allowance?

Note: If you give your employee an allowance for cellular phone or internet services, the allowance must be included in the employee’s income.