GST/HST Questions and Answers
Hello, and welcome to our questions and answers webinar on the Goods and Services Tax (GST)/ Harmonized Sales Tax (HST). My name is Maurice and I am your presenter.
Today’s webinar will be recorded and posted at a later date on the Canada.ca website.
We received a lot of questions. Some of the questions did not relate to the GST/HST applicable to taxable benefits. This webinar will focus only on the GST/HST as it applies to taxable benefits. But as always, if you have questions on other tax-related matters, please contact the CRA’s business enquiries line at 1-800-959-5525. You can also visit Canada.ca, and search for “Recorded webinars for businesses.” Those webinars will help you with different aspects of payroll and more. You will also find webinars about taxable benefits and GST/HST.
Before I answer your questions, I will quickly review the GST/HST rules as it applies to payroll.
The cost of benefits or non-cash compensation provided to an employee, commonly referred to as fringe or employee taxable benefits may be subject to the GST/HST. For the most part, the Income Tax Act directs the GST/HST treatment of these benefits.
Your employee has received a benefit if you pay for or give something that is personal in nature. Generally, if a benefit is taxable as income, we consider you to have made a supply of a property or service to the employee.
If a property or service benefit is subject to GST/HST, you are considered to have collected the GST/HST on that property or benefit. However, there are situations where you will not be considered to have collected this tax on benefits given to employees.
The following steps will help you determine whether you have to send to the CRA the GST/HST on employee taxable benefits.
Step 1 – Determine whether the benefit is taxable under the Income Tax Act or the Excise Tax Act (see the Benefits chart in the Guide T4130 employers' guide – Taxable benefits and allowances.)
Step 2 – For each taxable benefit, determine if there are situations where you are not considered to have collected the GST/HST.
Step 3 – If you are considered to have collected the GST/HST on a taxable benefit, you have to calculate the amount of the tax that is due. Information on how to calculate the tax is in the section called “Automobile operating expense benefits” and “Benefits other than automobile operating expense benefits” in the T4130.
And step 4 – Enter the amount of the GST/HST due on your GST/HST return and send the amount with your return for the reporting period that includes the last day of February.
For information on how to fill out a GST/HST return, see our recorded webinars for businesses on the Canada.ca website.
I will now answer your questions.
We received a lot of questions about input tax credits (ITCs) and how to claim the GST/HST you paid.
You may be eligible to claim ITCs on expenses that relate to your commercial activity.
On the screen, you have examples of common purchases and expenses for which you may be eligible to claim ITCs.
To claim an ITC, an expense must be reasonably related to your business.
You can find more information about the GST/HST in the recorded webinars on the Canada.ca website.
In what situations would GST/HST affect payroll?
Salaries, wages, commissions, and other cash remuneration (including gratuities) you make to employees are not subject to GST/HST. However, the cost of benefits or non-cash compensation provided to an employee, commonly referred to as a fringe or employee taxable benefit, may be subject to the GST/HST.
Is GST charged when invoicing a live out allowance (an LOA)? A mine sells to a contractor, who we have a contract with as a subcontractor. We invoice our services and live out allowances. We have been charging them GST and will send it to the CRA. When working for other contractors, they have sent the GST to the CRA, because they told us it would be considered in lining otherwise. Clarification would be much appreciated.
From your question, I do not know if you are talking about a housing allowance only, or a transportation allowance and a housing allowance.
When you provide a worker with a long-term accommodation (30 days or more) in prescribed zones, it is generally exempt from GST/HST, so you would not include the accommodation in the value of the benefit. However, short-term accommodation is generally subject to GST/HST.
Utilities are generally subject to GST/HST, so you would include that in the value of the allowance.
If you provide a transportation allowance, the GST is also included.
When you mention in lining, I think you mean interlining where several carriers may take part in the supply of a freight transportation service during the course of a continuous freight movement from the shipper to the consignee, but only one carrier invoices the customer.
Only the invoicing carrier who settles the freight bill directly with the customer (either the shipper in the case of a prepaid move, or the consignee in the case of a collect haul), is responsible for charging and collecting any applicable GST/HST.
Supplies of freight transportation services between interlining carriers are zero-rated. This is the case even if the invoicing carrier is acting as an agent of other carriers for collecting the GST/HST.
For more information, see the page called “GST/HST for freight carriers” on the Canada.ca website and the benefits chart in the Guide T4130. For the definition of a prescribed zone, see Chapter 3 in Guide T4130.
How is GST/HST calculated for an automobile taxable benefit in the auto industry—such as a dealership, for management and salespersons who drive demos throughout the year? Is it a different formula from the normal 5% rate in Alberta?
Similar to any other industry, when a dealership provides an automobile to an employee for personal use, a taxable benefit must be reported. The benefit for an automobile is generally made up of:
- a standby charge benefit,
- plus an operating expense benefit,
- minus any reimbursements employees make in the year of these benefits.
When you are calculating the amount of GST/HST that you are considered to have collected on an automobile benefit, you must take all three factors into considerations. The standby charge will be calculated at a certain percentage, and the operating expense benefit will be calculated at another.
For the operating expense benefit, if your employee works in a participating province, you are considered to have collected an amount equal to a percentage of the value of the benefit for GST/HST purposes, based on one of the following rates:
- 11% for Prince Edward Island and Nova Scotia;
- 10% for New Brunswick and Newfoundland and Labrador; and
- 9% for Ontario.
If your employee works in a non-participating province or territory (the rest of Canada), you are considered to have collected 3% of the value of the benefit for GST/HST purposes.
For the standby charge benefit, if your employee works in a participating province, you are considered to have collected GST/HST as follows:
- 14/114 for Nova Scotia, New Brunswick, Prince Edward Island, and Newfoundland and Labrador; and
- 12/112 for Ontario.
If your employee works in a non-participating province or territory (the rest of Canada), you are considered to have collected 4/104 of the value of the benefit for GST/HST purposes.
Let’s look at an example.
As a corporation registered for GST/HST, you buy a vehicle that is used more than 50% in commercial activities and is made available to your employee during 2017. The last establishment where the employee ordinarily reported in the year for the corporation was located in Manitoba.
You calculated a taxable benefit (including GST and PST) of $4,800 on the standby charge and an operating expense benefit of $2,400.
- The GST on the standby expense benefit is: $4,800 x 4/104 = $184.62
- The GST on the operating expense benefit is: $2,400 x 3% = $72.00
If you are a large business for the purposes of the recapture of input tax credits for the provincial part of HST, different rates will apply. For more information, see Guide T4130, Employers' Guide – Taxable Benefits and Allowances.
Which employee benefits should be charged GST/HST?
To determine whether GST/HST has to be included in the value of a benefit, see the benefits and allowances chart on the Canada.ca website. The chart is also included in the Guide T4130.
What are the GST implications on payroll items that are a reimbursement (with a receipt) versus an allotment (flat amount paid, but no receipt required)?
The GST implications would be the same. When you reimburse an employee for an employment-related expenses, or provide a reasonable allowance, the amount paid is in cash. Cash remuneration you make to employees is not subject to GST/HST (see Slide 4 for more details).
What about Ontario’s 8% tax on insurance? Should that be included in the amount of a taxable benefit? What about in the case of Long term disability insurance?
Insurance products are exempt from GST/HST. However, the Province of Ontario charges an 8% provincial sales tax on insurance and benefit plans. Generally, when calculating an employee’s taxable benefit, you must include any provincial levies or sales tax that you, the employer, paid on the insurance premiums. If the employee paid these taxes either directly or through reimbursements to you, you must deduct these taxes when calculating a benefit’s value.
Contact the Ontario Ministry of Finance for more information.
When evaluating the amount of a taxable benefit, should GST/HST be included in the amount? Does it make a difference if the employer is a charity not registered for GST/HST, but the charity claims a rebate?
To determine whether GST/HST has to be included in the value of a benefit, see the benefits and allowances chart on the Canada.ca website or in the Guide T4130. The amount of GST/HST you include in the value of a benefit is calculated on the gross amount of the benefit, before subtracting taxes or any amounts reimbursed by the employee.
Non-registered entities (such as a qualifying charity) still have to include any GST/HST paid in the value of the benefit. However, at year-end, the non-registered entity will not be considered to have collected GST/HST on the benefit and, therefore, will not have to send any GST/HST to the CRA.
Is GST/HST applied on monthly, ongoing, taxable benefits for the use of a company vehicle?
The benefit for an automobile is generally made up of a standby charge benefit, plus an operating expense benefit, minus any reimbursements employees make in the year for these benefits. The standby charge benefit and the operating expense benefit includes GST/HST.
For example, a corporation leases an automobile from a dealership and makes monthly payments (including GST/HST) to the dealership. The corporation then provides the automobile to an employee for use in the course of their employment. However, some of the employee’s use of the automobile is personal. When calculating the amount of the standby charge benefit, you must include the GST/HST you paid under the leasing contract.
At year-end, the corporation will be considered to have collected GST/HST on the taxable benefit and must calculate the amount of taxes due (see slides 6 through 9 for a detailed calculation). The GST/HST due would then be reported on the GST/HST return for the reporting period that includes the last day of February (that is, when the taxable benefit is reported on the employee’s T4 slip).
How is the GST/HST applied when an employee’s monthly fee for a fitness gym is paid by the company?
Similar to automobile benefits, when an employer pays, reimburses, or subsidizes the cost of memberships to a business or professional club (that operates fitness, recreational, sports, or dining facilities for the use of their members, but their main purpose is something other than recreation), the value of the employees’ taxable benefit will include the GST/HST paid by the employer.
At year-end, the employer will be considered to have collected GST/HST on the taxable benefit and must calculate the amount of taxes due (see slide 7—calculated the same way as the operating charge benefit). The GST/HST due would then be reported on the GST/HST return for the reporting period that includes the last day of February (when a taxable benefit is reported on the employee’s T4 slip).
What is the tax treatment on meal benefits? In the cinema industry, we pay a caterer to prepare meals for our technicians. The cost of a caterer is added to the technician’s pay as a taxable benefit. Most of the technicians are employees, but some are self-employed subcontractors.
Similar to other benefits that is taxable for GST/HST purposes, when an employer pays or reimburses the cost of a meal, the value of the employee’s taxable benefit will include the GST/HST paid by the employer.
At year-end, the employer will have been deemed to have collected GST/HST on the taxable benefit and must calculate the amount of taxes due (see Slide 7—calculated the same way as the operating charge benefit). The GST/HST due would then be reported on the GST/HST return for the reporting period that includes the last day of February.
In your question you stated that the benefit was taxable and added to the employee’s income. However, there may be circumstances where a meal benefit would not be considered taxable. Generally, if an employer provides subsidized meals to an employee (such as in an employee dining room or cafeteria), these meals are not considered a taxable benefit if the employee pays a reasonable charge. A reasonable charge is one that covers the cost of food, its preparation, and service.
In the case of subcontractors, meals would not be a taxable benefit and could be part of a contract between the parties.
Let’s look at an example.
If the caterer’s cost is $1,000 and you add 13% in GST/HST, the cost of the benefit would be $1,130. If the caterer regularly prepares meals for 10 technicians, you would divide $1,130 by 10. You must then include $113 as a taxable benefit in the income of each technicians that are employees.
My employee submitted a gym membership receipt for 50% co-pay reimbursement: $50.00 + $7.50 HST = $57.50. Would my employee's taxable benefit be $28.75, and could the company claim $3.75 HST as an input tax credit?
Yes, you would include the HST in the taxable benefit, minus the amount the employee reimbursed. Generally, a company cannot claim an ITC for the GST/HST paid on services you acquire in a participating province for the exclusive personal consumption, use, or enjoyment (90% or more) of an employee or an employee's relative.
For information on input tax credits, see slide 3.
Are we required to include GST/HST on taxable benefits for retirees based on the province they reside in?
When calculating the value of a taxable benefit provided to a retiree, the employer may have to include the GST/HST payable by them. The GST/HST payable will be the amount included in the payment made to a provider of the goods or services that was received by the retiree.
At year-end, the employer will be considered to have collected GST/HST on the taxable benefit and must calculate the amount of taxes due. The GST/HST due would then be reported on the GST/HST return for the reporting period that includes the last day of February (that is when the taxable benefit is reported on the retiree’s T4A slip).
Are there any HST implications on non-taxable meal allowances?
If a meal allowance is not taxable, there are no HST implications.
If you are looking to expand your knowledge, there are resources that can help:
- The Canada.ca website
- Pamphlet RC2, The Business Number and your Canada Revenue Agency Program Accounts, provides in-depth information about the business number and the CRA program accounts, including the GST/HST program account
- Guide RC4022, General Information for GST/HST Registrants, is a resource for new and existing registrants
- Guide T4130, Employers’ Guide – Taxable Benefits and Allowances, includes a benefits chart that shows the benefits for which you have to include GST/HST
With that, we have reached the end of the webinar. A webinar on information about the enhancement of the Canada Pension Plan will be coming soon.
Thank you for watching.
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