Learn about taxable benefits
COVID-19: Employer-provided benefits and allowances
The Canada Revenue Agency (CRA) has adopted a number of administrative positions for employer-provided benefits pertaining to commuting, parking and home office expenses.
Learn more: Employer-provided benefits and allowances
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Your employee has received a benefit if you pay for or give something that is personal in nature:
- directly to your employee
- to a person who does not deal at arm’s length with the employee (such as the employee’s spouse, child, or sibling)
A benefit is a good or service you give, or arrange for a third party to give, to your employee such as free use of property that you own. A benefit includes an allowance or a reimbursement of an employee’s personal expense.
An allowance or an advance is any periodic or lump-sum amount that you pay to your employee on top of salary or wages, to help the employee pay for certain anticipated expenses without having them support the expenses. An allowance or advance is:
- usually an arbitrary amount that is predetermined without using the actual cost
- usually for a specific purpose
- used as the employee chooses, since the employee does not provide receipts
An allowance can be calculated based on distance, time or something else, such as a motor vehicle allowance using the distance driven or a meal allowance using the type and number of meals per day.
A reimbursement is an amount you pay to your employee to repay expenses they incurred while carrying out the duties of employment. The employee has to keep proper records (detailed receipts) to support the expenses and give them to you.
If you provide benefits to your employees, you always have to go through the same steps. If a step does not apply to you, skip it and go on to the next step:
An “employee” includes an individual who holds an office, unless otherwise noted.
Your first step is to determine whether the benefit you provide to your employee is taxable and has to be included in their employment income when the benefit is received or enjoyed.
Whether or not a benefit is taxable depends on whether an employee or officer receives an economic advantage that can be measured in money, and whether that individual is the primary beneficiary of the benefit.
Once you determine that the benefit is taxable, you need to calculate the value of the specific benefit.
The value of a benefit is generally its fair market value (FMV). This is generally the amount the employee would have had to pay for the same benefit, in the same circumstances, if there was no employer-employee relationship.
The cost to you for the particular property, good, or service may be used if it reflects the FMV of the item or service.
You must be able to support the value if you are asked.
Calculate the GST/HST on taxable benefit
When you calculate the value of the taxable benefit you provide to an employee, you may have to include:
the GST/HST payable by you
the PST that would have been payable if you were not exempt from paying the tax because of the type of employer you are or the nature of the use of the property or service
Use the Benefits chart, to find out if you should include GST/HST in the value of the benefit. Some benefits have further information about GST/HST in the topic specific section.
The amount of the GST/HST you include in the value of the taxable benefits is calculated on the gross amount of the benefits, before any other taxes and before you subtract any amounts the employee reimbursed you for those benefits.
You do not have to include the GST/HST for:
cash remuneration (such as salary, wages, and allowances)
a taxable benefit that is an exempt supply or a zero‑rated supply as defined in the Excise Tax Act
For more information on exempt or zero‑rated supplies, go to Type of supply.
If you are a GST/HST registrant, you may have to remit the GST/HST for the taxable benefits you provide to your employees.
After you calculate the value of the benefit, including any taxes that may apply, add this amount to the employee's income for each pay period or when the benefit is received or enjoyed. This gives you the total amount of income from which you have to make payroll deductions. You then withhold deductions from the employee's total pay in the pay period in the normal manner. The deductions you withhold, especially the employment insurance (EI) premiums, will depend on whether the benefit you provide is cash, non-cash, or near-cash.
If you provide your employee with a monthly taxable benefit, you may include a prorated value in your employee’s income in each pay period in the month.
Cash benefits include such things as:
- physical currency
- direct deposit
When a cash benefit is taxable, it is also pensionable. This means you have to deduct Canada Pension Plan (CPP) contributions from the employee's pay. It also means that you have to pay your employer's share of CPP to the CRA.
If the employment is not pensionable under the CPP, then any taxable benefits paid in cash are not pensionable and CPP contributions should not be withheld. For more information, see "Employment, benefits, and payments from which you do not deduct CPP contributions" in Chapter 2 of Guide T4001, Employers' Guide – Payroll Deductions and Remittances.
When a cash benefit is taxable, it is also insurable. This means you have to deduct EI premiums from your employee's pay. It also means that you have to pay the employer's share of EI to the CRA.
If the employment is not insurable under the Employment Insurance Act, then any taxable benefits paid in cash are not insurable and EI premiums should not be withheld. For more information see "Employment, benefits, and payments from which you do not deduct EI premiums" in Chapter 3 of Guide T4001, Employers' Guide – Payroll Deductions and Remittances.
When a cash benefit is taxable, you have to deduct income tax from the employee's total pay in the pay period.
Non-cash or near-cash benefits
A non-cash (or “in kind”) benefit is the actual good, service, or property that you give to your employee. This includes a payment you make to a third party for the particular good or service if you are responsible for the expense.
A near-cash benefit is one that functions as cash, such as a gift certificate or gift card, or something that can easily be converted to cash, such as a security, stock, or gold nugget.
For more information on near-cash benefits, go to Gifts, awards, and social events.
When a non-cash or near-cash benefit is taxable, it is also pensionable. This means you have to deduct CPP contributions from the employee's pay. It also means that you have to pay the employer's share of CPP to the CRA.
Except for security options, if a non-cash taxable benefit is the only form of remuneration you provide to your employee in the year, there is no remuneration from which to withhold deductions. You do not have to withhold CPP contributions on the amount of the benefit, even if the value of the benefit is pensionable. Also, you do not have to remit your share of the CPP amounts.
A taxable non-cash or near-cash benefit is generally not insurable. Do not deduct EI premiums.
Exceptions to this rule are:
- The value of board and lodging an employee receives during a period in which you pay the employee a salary in cash. For more information, see Board and lodging.
- Employer-paid RRSP contributions when the employee can withdraw the amounts. For more information, see Registered retirement savings plans (RRSPs).
When a non-cash or near-cash benefit is taxable, you have to deduct income tax from the employee's total pay in the pay period. Except for security options, if a non-cash or near-cash benefit is of such a large value that withholding the income tax will cause undue hardship, you can spread the tax you withhold over the balance of the year. We consider undue hardship to occur if the required withholding results in your employee being unable to pay reasonable expenses related to basic family needs. Basic family needs are those related to food, clothing, shelter, health, transportation, and childcare.
Except for security options, if a non-cash or near-cash taxable benefit is the only form of remuneration you provide to your employee, there is no remuneration from which to withhold deductions. You do not have to withhold income tax on the amount of the benefit, even if the value of the benefit is taxable.
For more information on calculating payroll deductions, go to Payroll or see Guide T4001, Employers' Guide – Payroll Deductions and Remittances.
You need to report the taxable benefit on a T4 slip in both:
- Box 14 (Employment income)
- "Other information" area: the code used to report the benefit in the "Other information" area depends on the benefit received.
For more informatin, see Filling out the T4 slip.
To find out if benefits and allowances are taxable and how they are declared on T4 or T4A slips, see List of benefits and allowances.
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