What is a taxable benefit
What is a benefit, an allowance, or a reimbursement
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.
What are cash, near-cash, and non-cash benefits
- Physical currency
- Direct deposit
A near-cash benefit is one that functions as cash or something that can easily be converted to cash, such as a security, stock, or gold nugget.
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.
Under the CRA administrative policy for gifts, awards, and long-service awards, gift cards that meet all of the conditions may be considered non-cash.
Learn more: Gifts, awards, and long-service awards
Steps to follow to determine if you provide benefits to your employees
If you provide benefits to your employees, you always have to go through the same steps. An "employee" includes an individual who holds an office, unless otherwise noted. If a step does not apply to you, skip it and go on to the next step.
Determine if the benefit is taxable
Whether or not a benefit is taxable depends on:
- whether the employee or officer receives an economic advantage that can be measured in money
- whether the individual is the primary beneficiary of the benefit
Calculate the value of the benefit
- The value of a benefit is generally its fair market value (FMV)
- This is the price that can be obtained in an open market between two individuals dealing at arm's length
GST/HST may need to be included in the value of the taxable benefit for income tax purposes.
Calculate and withhold payroll deductions
- The employee can be paid or provided the benefit in cash, non-cash or near-cash
- The manner in which the benefit is paid will affect the payroll deductions withheld
Report the benefit on a slip
You need to report the taxable benefit on a 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
Generally, benefits that employers provide to their employees are taxable under section 6 of the Income Tax Act (ITA), unless specifically excluded in the ITA. The administrative policies of the CRA identify conditions under which some of these benefits may not be taxable. CRA's administrative policies are detailed in the specific topics.
What are the different types of taxable benefits
Refer to: Types of taxable benefits
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