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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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.
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