The Income Tax Act has broad and general rules requiring most fringe benefits to be included in net employment income.
The government wants to discourage employers from substituting fringe benefits for actual cash compensation to avoid income tax. In the end, the value of a benefit of any kind must be added to your employment income.
Examples of Taxable Benefits from Employment:
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- Gifts. There is an exception where your employer is allowed to provide gifts to their employees subject to a $500 dollar exemption that can be applied to the value of all non-cash gifts.
- Board, lodging, and low rent or free accommodation (with some exceptions),
- Personal travel expenses for you and your spouse,
- Personal use of your employer’s automobile,
- Personal use of your employer’s vacation property,
- Holiday trips, prizes, and incentive awards for you and your family.
- Use of frequent flyer awards earned through employment. Note that if you use your air miles to upgrade your business travel then the benefit is not taxable,
- Tuition and fees for educational programs that are of a personal interest to you and not related to your employer’s business.
- Provincial health insurance premiums.
- Life insurance premiums,
- Reimbursement for tools used in your employment,
- Low and interest free loans,
- Wage loss replacement plans,
- Financial counselling and income tax return preparation, and
- Stock options
Sales Taxes Are Taxable Benefits
Any sales taxes paid by your employer to provide the benefit are included as part of the benefit. If you employer is exempt from paying the sales tax or a portion of the sales tax then the full amount of the sales tax that would have been paid is to be included as part of the taxable benefit.
Tax Free Benefits
The government allows employers to provide certain benefits to employees’ tax free in order to fulfill policy objectives. The provision of these benefits remains deductible to the business and tax free to the employer to encourage businesses to provide such benefits.
Non-Taxable Employment Benefits Include:
- Contributions to a registered pension plan (RPP) or deferred profit sharing plan (DPSP),
- Employer contributions to a group sickness or accident insurance plan,
- Contributions to a private health insurance plan (except Quebec),
- Contributions to a supplementary unemployment insurance plan,
- Counselling services related to mental or physical health, termination, or retirement,
- Discounts on purchases of merchandise for personal use,
- Commissions received on personal purchases for your personal use (for example, if you sell life insurance and you buy a policy from your employer and receive a commission).
- Subsidized meals,
- The cost of free or subsidized school for you children if the services are provided in a remote area,
- Distinctive uniforms and special clothing required for your employment,
- Transportation to your place of employment if provided directly by your employer,
- The use of your employers recreational facilities,
- Transportation passes for bus, rail, and airline employees (airline employees standby fare only),
- Recreational facility dues if such membership is required and benefits your employer (the expense is not deductible to the employer however),
- Two non-cash gifts with a combined value of less than $500 to mark events such as holidays, birthdays and special occasions,
- Non-cash incentive awards of up to $500 to mark achievements such as length of service or safety standard awards,
- Home computers if it primarily benefits your employer and is available to all employees in the same class,
- Tuition and education fees for courses taken to maintain or improve your skills to maintain for potential future responsibilities,
- Moving expenses to relocate you to a new work-related location (however, loan assistance or reimbursements to finance a new residence are taxable benefits),
- Fees for business related courses such as stress management or language skills courses, and
- Reasonable business trip expenses.
Note: If you employer contributes to a sickness accident or disability insurance plan, or an income maintenance insurance plan, any benefits you receive are taxable but will be reduced by any of your premiums paid into the plan.
Tip: Have your employer provide as many non-taxable benefits as possible without changing the level of benefits received. This will reduce your tax burden.
Do You Have A Question?
If you have a question about this article, please feel free to leave a comment in the box below. Your comments and questions are welcome and help others.
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If an employee is offering additional medical services (i.e. medcan coverage for total body scans, emergency medical services outside of the provincial health care system) is this a taxable benefit.
Does it make a difference to the number of employees offered the services – i.e. 6 employees as oposed to 1.
@ Kim:
If the employer pay the premiums for a private medical plan such as a Blue Cross or Manulife type plan, then the premium not a taxable benefit for the employee. It is possible for an employer to establish these sorts of plans “in-house.” There are rules and regulations the CRA looks at to determine if the plan qualifies. Take a look at the following CRA link.
http://www.cra-arc.gc.ca/E/pub/tp/it339r2/README.html
On the other hand, if the employer pays the medical expenses for an employee, the payment constitutes a taxable benefit for the employee.
Just want to clarify if my understanding is correct.
So under a group insurance benefit plan provided by the employers which covers – Life insurnace, AD&D, Critical Illness, Health & Dental, only premiums paid on life insurance is a txable benefit to the employees. And premiums paid on all the other items are not taxable benefits.
@ Ivy – That is correct. Take a look a IT470 in the article.
Hi there,
CRA’s policy on gifts/awards has changed for 2010…now it’s a single $500 exemption per employee per year:
http://www.cra-arc.gc.ca/tx/bsnss/tpcs/pyrll/bnfts/gfts/nwplcy2010-eng.html
There is also a long-service exception that I’ll be taking advantage of every 5 years
I travel everyday to work and my employers pays for my meals and also a travel expense, how does this benefit me on my tax return. The amount that is paid is generally the same every week.
@TerH – If you are travelling on business and they are paying for your meals and travel then this would not be a taxable benefit. If they are payi9ng for you to travel to work and they buy you meals every day, then this is a taxable benefit.
Effective January 1, 2010 as an incentive for staff to take public transportation and give up their parking spot (due to parking space reductions), we have offered to pay the monthly bus pass fee for all eligible employees. Would this be considered a taxable benifit, and such be recorded on their T4′s
Hi Jennifer:
Transit passes are considered a taxable benefit and must be reported on the 2010 T4. It would only be a benefit if the employee took advantage of your company providing the transit pass.
One way to look at it, is that while they are taxed on the value of the pass, they still receive something: Example, if the annual pass cost is $1,800 and the employee’s marginal tax rate is 30%, they have received an $1,800 pass for only $540.
The Employers’ Guide Taxable Benefits and Allowances 2009 is a great resource (the link goes directly to trnasit pases).
Can an employer give out gift cards as prizes to employees for values between 10-50 dollars instead of giving prebought gifts as prizes without it being considered a taxable benefit?
Hi Ivan G:
The CRA considers gift cards as near cash and therefore are taxable benefits and subject to tax, CPP and EI premiums. Non-cash awards totalling $500 or less are not considered taxable.
A word of caution: The information provided in this site should not be considered professional advice. Seek the guidance of a paid professiona before making any decisions.
Will any of the following group insurance plan benefits provided by the employer will be charged HST in July in Ontario? Life insurnace, AD&D, Critical Illness, Health & Dental, Vision
They all currently include PST?
Earl L: I’m not entirely sure if these will be subject to HST. I’m up-to-date on GST and the list of items that are included and excluded.
My employer reimburses me for tuition fees and the reimbursement is considered a non-taxable benefit (as it is supposed to benefit me & the company). What I am wondering is whether I can included it in Other Employment Income and then claim tuition fees, education amounts and textbook credits. I am not “required” to include this benefits in computing my employment income, but can I elect to do so and then claim tax credits?
Claire: This is covered by the CRA document IT-470R. If your employer reimburses you for tuition that is not a taxable benefit then you cannot claim the tuition tax credit, education or text book amounts.
Thanks for the info. I’m specifically interested in Medical expenses and how they are considered taxable benefits.
There seems to be discrepancy in the Benefits guide (http://www.cra-arc.gc.ca/E/pub/tg/t4130/t4130-e.html#P981_120285).
That is, if “Medical Expenses” are paid, they are considered taxable. However, private health services premiums are NOT taxable benefits. If you look at the definition of private health services plan (http://www.cra-arc.gc.ca/E/pub/tp/it339r2/it339r2-e.html) (point #7), it states that when an employer reimburses its employees for medical or hospital care, it can be considered a private health plan if it is stated in the contract.
Therefore, is it correct to interpret that if it is in the employee’s contract that the employer will reimburse medical expenses, it isn’t taxable, and if is isn’t in the contract it IS taxable?
Hi Nick,
Read through IT-470R. Provincial health care premiums (i.e. OHIP in Ontario and the BC Medicare in BC) are taxable benefits. Private health care plans are not (i.e. Blue Cross or Manulife medical/dental benefits). The payment of specific amounts are taxable. While it seems somewhat inconsistent, the application appears to favour an organized plan that covers extended benefits.
Thanks for the input. I’m interested in setting up a “self-insurance”, ie: where the employer pays for and administers its own health plan. I believe they refer to it as funded and unfunded private health plans. That is: not through a third party Blue Cross or Manulife. It appears that under IT-339R2, this is allowable, but to be considered a “private health services plan”, it must be in the employee’s contract as per point #7….
If an Employer pays the premiums for Group Life Insurance, AD & D, and critical Illness Insurance (not a wage replacement plan, but a lump sum payment) is the payment of the benefit (i.e. payout of the lump sum under the critical illness, or AD & D plan) taxable? I understand that the premiums are a taxable benefit, but am unclear regarding the actual benefit pauot.
Hi Deb,
The cost of life insurance paid by the employer is a taxable benefit to the employee when paid. However, if the insurance pay’s out to the beneficiary the proceeds are not taxable.
The AD&D/DI are not a taxable benefit if the plan is a “group plan.” If it not a group plan then it is a taxable benefit. The tax status of the benefit depends on n whether or not the employer has contributed to the plan.
If the employer has made any contributions, the benefits received must be included in employment income. However, the total cumulative contributions made by the employee to the plan paying the benefits can be used to reduce the amount that is taxable.
I have just accepted a contract job and was wondering what are the things that are tax deductable. I know you can claim your milage on the care to and from work. Is there anything else?
Regards,
Dan.
Hello Dan,
It’s important o understand that just because you are on “contract” does not mean you are a business and self-employed. There are rules that are used to determine if you are an employee or self-employed. Take a look at my article on being an employee or self-employed.
Even if you are self-employed, you can only deduct your car expenses related to generating business income. You can’t deduct for mileage: rather you can deduct gas an operating costs (including CCA and insurance) in proportion to your business use of your vehicle.
Hi Tax Guy,
I’m a self-employed consultant. A company will pay for my travel to their worksite where I stay for weeks at a time, during which they also reimburse me for my living expenses and any equipment/services I incur on their behalf related to their project, before I move onto the next. When I get reimbursed for expenses I submit to them, is this considered taxable income?
Thanks,
Kerry
Hello Kerry,
Travel to a location that is not your normal place of business would be deductible under normal circumstances. The receipt of the reimbursement would be revenue. The two should net themselves out.
If I leave the Canada to look for employment and after seven months in a foreign country land a consulting job, which of the below would be considered taxable benefits when I file my next tax return?
– accomodation
– meals
– overtime meals
– flights from the foreign country and back if I take a vacation
thanks,
Carolyn
Hello Carolyn,
Are you an employee or a self-employed consultant? Is your employer going to pay these costs or are you?
My employer is going to pay them, my employer is based in the UK and acting as an agent in NZ for the telecom company the contract is with.
Carolyn
Sorry, I forgot to add that I am not employed fulltime with the UK agent, I am a subcrontractor under them in NZ. They will invoice the phone company, pay for the living expenses mentioned above and also pay me.
Carolyn
Assuming your work out of the country is only temporary and you have maintained your home in Canada, then the cost would probably not be a taxable benefit.
I no longer have a home in Canada, I transferred the deed to the property to a friend before I left and the property sold last February without any equity other than to pay off the mortgage.
Hi Tax Guy,
I am a self-employed travel agent. I work from home. From time to time I receive a free reward trip from my suppliers, these rewards include free accomodation and sometimes transportation. They are given to travel agents who are among the top producers for that supplier and sometimes include an award presentaion. There is obviously no Employer-Employee relationship. Do these trips constitute “a benefit of any kind” and therefore taxable income?
I also take several trips a year to different destinations as it is important for me to be aware of and up to date on the various travel destinations in the world to better serve my clients. I tour different hotels and attractions and meet with local representatives. I have been writing off these expenses as travel would I be better to write these off as training expenses? Do you know of any limitations?
These are employment benefits. You’re not an employee!
The travel is travel. You write the expense off as it is. Meals and entertainment expenses are only 50% deductible.
I will say that if you are self-employed, you should seriously consider having an accountant do your taxes for you.
Hi Tax Guy.
A compliance audit was conducted by the CRA for the 2006-2008 calendar years on my previous employer. I worked for them for during 2006-2007. This audit resulted in the CRA issuing amended T4 slips for those individuals whom the employer provided parking passes as according to the CRA, parking provided to an employee is considered a taxable benefit.
My question is: Am I legally responsible to pay the taxes on this or should it be my previous employer that should pay as they are the ones that made the error. Do I have any recourse or justification to file an Objection?
Anything you could tell me would be greatly appreciated.
Hi Colette,
You are responsible for the tax and the CRA can enforce it. You can’t fight this.
In addition, I read the following information from a book but I think it might apply the the U.S.:
“For regular employees, the value of employer-provided parking spots or subsidized parking is free in 2009 up to a limit of $230/month … The value of parking benefits exceeding $230/month is taxable in 2009.”
Does this apply to Canada or do we have anything similar to this?
No. This does not apply to Canada.
Thanks very much Tax Guy.
How should be computed the Fair Market value of the parking taxable benefit? Has CRA (ever)disagreed to the way the taxable value was calculated and applied by a company? Can you point me to some exemples of FMV calculation and dispute with CRA?
What do similar parking spaces go for near your location? There might be local parking lots around. Ask what their monthly fee is.
Hello,
My employer provides meals in a cafeteria. I am not paid for this 30 minute meal break. I prefer to bring my own healthy food rather than eat what is offered in this cafeteria. Now I notice it is listed on my pay statement as a taxable benefit. Can you tell me what these meals going to cost me even though I will never eat there?
If I tell my employer I am declining these meals, are they obligated to remove them as a taxable benefit?
Thanks for answering my question.
Hi Lee,
The cost to you is the tax on the amount allocated. Click here http://www.ey.com/CA/en/Services/Tax/Tax-Calculators-2010-Personal-Tax and enter your salary. Then look at the marginal tax rate for your province and that % times the amount on your cheque is the cost to you!
I started a truck company and hired one driver who being on the road, long haul, I have decided to pay his food expenses. Is this a non-taxable benift to my driver or a taxable benefit to my driver(employee)?
If you reimburse him for this meal expenses while he is on the road, then it is not a taxable benefit. If you provide a per-diem then the per-diem is a taxable benefit.
One solution I may suggest is that you could increase their pay by the amount of meals you normally provide. Then the driver can claim 70% of the meals as an employment expense directly.
does this mean that this becomes a non-taxable benefit, which would then allow me to claim the expenses thru the companys books?
Yes. But it just becomes part of his salary.
Is there a tax difference between being paid an hourly rate for travel time and being paid by kilometer for a travel allowance?
Both would be taxable benefits. Mileage is not a taxable benefit if it is within the set limits for automobile allowances.
My employer offers parking to those eligible based on certain criteria (Position, Tenure, Disability, Car pooling, etc). If the eligible applicant is accepted and has agreed to pay the charged rate which are automatically deducted via payroll deductions. Is this considered a taxable benefit? There are not enough parking stalls for every employee and as a result certain criteria have been established to have a manageble list. Does the scramble parking rule apply if this criteria is considered to be the equivalent of ‘first-come, first -serve’?
It sounds like the parking lot belongs to the company and there is not enough space. They are offing spots for a fee to certain employees but other must scramble for the rest. I do not feel this scramble parking is a taxable benefit.
If the company provided you with parking in a paid lot, this would be a taxable benefit.
Tax Guy,
I was given a golf membership to a golf a country club where I take out possible clients. Is this considered a taxable gift.
Marie