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:
- 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
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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 – Take a look a IT470 in the article. The medical and dental expenses are not taxabale benefits, the remainder should be.
Hi Tax Guy,
The similar sitation as Ivy’s. The employer pays the group insurance premium for employees which covers life insurance, Health and dental. But the employees pay the Long term disability (LTD) premium. However, the employer gives this same amount of premium to employees through the payroll. The LTD is taxable benefit?
Thanks.
I’ve adjusted the above response slightly.
The amount the employ “gives” to the employee is taxable income. The LTD is an after-tax deduction. If the premium were $100, the employee is taxed on $100!
Does this $100 should be included in Box 40 of T4s? and also included in Box 85?
Vicky,
The $100 paid by the employer goes in box 40.
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.
A friend told me his employer gave $500 cheque gift non-taxable as holiday gift, is that gift taxable and is his employer mistaken?
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.
Now still charge 8% sales tax in Ontario.
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.
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