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 kindmust be added to your employment income.
Examples of Taxable Benefits from Employment:
- 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.
What Tax Software Should You use?
If your primary income is from employment and includes taxable benefits, TurboTax Standard is your best choice. However, if you have rental or investment income, you should be using TurboTax Premier Edition.
CRA Resources
Looking For Professional Help?
If you’re looking for advice or tax planning services, you can contact me directly through my professional tax practice.
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My wife went out of town for medical reasons and her medical covered these expenses, but when she got her paycheck, they reimbursed her for her travel expenses under gross so it was then taxed. Is that correct?
The reimbursement from the employer is a taxable benefit if paid directly. If it was through a private health insurance plan, it would have been tax free.
You can claim the expense as under the medical expense tax credit.
Hello,
I am doing my fiances Income taxes and has insurance for her medication, etc. She claimed and received a lot of medication, chiropractor, dentist, etc. benefits. I am having trouble finding where to put those re-imbursements on her return. Would those benefits already be on her T4 from her employer or should she ask the insurance provider for something?
Any help would be appreciated.
Corey
Corey,
If your fiance paid the premiums for the private medical insurance directly or through payroll deduction, this is claimed as a medical expense tax credit.
Reimbursements from the plan are neither taxable income nor an expense allowed under the medical expense tax credit.
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