There are various types of benefits that an employer can provide to their employees. Depending on the nature of the benefit, it will either be taxable or non-taxable to the employee.
What are taxable benefits?
The word “taxable” means that the value of the benefit must be included in the employee’s income and subject to income tax. The value of the benefit is generally reported on the employees T4 slip, which is submitted to the Canada Revenue Agency (CRA), and included on your personal tax return. The amount of income tax owing will be calculated based on your marginal personal tax rates.
Which employee benefits are taxable?
In general, if an employee receives “an economic advantage that can be measured in dollars” and if the employee is the primary beneficiary of the benefit, it will be considered taxable.
Let’s look at a few examples:
1) Your employer provides you with a uniform as well as safety training. Is this a taxable benefit? Who is the primary beneficiary here? Both items are essential for the employee to perform their duties however the employer is the primary beneficiary. These are non-taxable benefits.
2) Your employer will reimburse you for tuition fees paid. Is this a taxable benefit? Who is the primary beneficiary here? This will depend on the type of education that is being obtained.
• When the employee is undertaking general employment-related training, this is largely considered to be for the benefit of the employer and would not be considered a taxable benefit. This generally also includes business-related courses such as stress management, employment equity, and first aid courses, which may not be directly related to the employer’s actual business.
• When the employee is undertaking personal interest or technical skills training that is not related to the employer’s business, this is generally considered to be for the benefit of the employee and would be considered a taxable benefit. Examples of this may include music, dance, or foreign language courses.
3) Your employer provides overtime meals or an allowance for overtime meals. Is this a taxable benefit? Who is the primary beneficiary here?
When all of the following conditions are met, overtime meals or an allowance for overtime meals will not be considered a taxable benefit:
• The allowance, or the cost of the meal, is reasonable. The CRA generally considers a value of up to $23 (including GST/HST and PST).
• The employee works two or more hours of overtime right before or right after their scheduled hours of work.
• The overtime is not frequent and is occasional in nature (usually less than three times a week).
• If overtime occurs frequently or becomes the norm, the CRA may consider overtime meals or allowances to be a taxable benefit as they start to take on the characteristic of additional remuneration.
Are Gifts and Rewards taxable?
One area that commonly comes up with regard to employee taxable benefits is Gifts and Rewards given by employers to their employees. Let’s take a look at this in more detail.
Cash and near-cash gifts or awards are always a taxable benefit for the employee. A near-cash item is one that functions as cash, such as a gift certificate, gift card, or an item that can be easily converted to cash such as a gold nugget, security, or stock.
Gifts and Awards
A gift must be for a special occasion such as a religious holiday, birthday, wedding, or the birth of a child.
An award has to be for an employment-related accomplishment recognizing the employee’s overall contribution to the workplace (not recognition of job performance). The employer is required to use the fair market value of each gift to calculate the total value of gifts and awards given to an employee in the year.
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 of the non-cash gifts and awards is greater than $500, the amount over $500 must be included in the employee’s income as a taxable benefit.
It is important to note that items of small or trivial value do not have to be included when calculating the total value of gifts and awards given in the year. This may include coffee/tea, mugs, plaques/trophies, shirts with employer’s logo.
In addition to the policy stated above, the CRA allows once every five years for an employer to give 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 of service and it must be at least five years since you gave the employee the last long-service or anniversary award.
Any amount over $500 would be considered a taxable benefit. It is important to note that the $500 exemption for long-service awards does not affect the $500 exemption for other gifts and awards in the year.
Want to know more about employee benefits?
The above list includes only a few examples of taxable and non-taxable benefits. For more information, employers and employees can consult the CRA’s Employers’ Guide on taxable benefits and allowances.