Taxable Benefits Definition
A taxable benefit is considered to be a type of payment to an employee from their employer that is seen as a positive benefit. It can take a variety of forms such as, a cash allowance, a reimbursement, or the free use of something.
Nothing is considered free when it comes to taxes. Any type of benefit that an employee receives from their employer will result in the employee needing to pay tax on the benefit.
Examples of Taxable Benefits
The following items would be considered a taxable benefit:
• Automobiles or other motorized vehicles
• Travel allowances
• Board and lodging
• Gifts and awards – non cash gifts worth less than $500, given for a special occasion (e.g. wedding, birthday, holiday, etc.) are taxable
• Group term life, accidental death, dismemberment, and critical insurance polices
• Interest-free or low-interest loans
• Security options
• Memberships for Clubs/Recreational Facilities – such as gym, pool, golf course, etc.
• Gift certificates
• Tool reimbursement or allowance
• Transit passes
• Tuition fees
Points on How Taxes are Calculated
• In some cases the employee would receive a fixed monthly allowance or in other instances they may be reimbursed for costs incurred. Either way, the amount that is received would be the taxable benefit.
• The value of the benefit received would be added to an employee’s T4 as income.
• Value = cash allowance received, cash reimbursement received, or fair market value of the item.
• Fair market value would be considered in a situation when an employee receives something for free from his/her employer. For example, a company allows their employee to use a vacation property free of charge.
• If an employee’s annual income is $50,000 and the value of taxable benefits they received is $5,000, their total income will be $55, 000. This means that the employee will pay tax on the $5000.
• Without taxable benefit, income = $50,000 and average income taxes = $8,830.84
• With taxable benefit, income = $55,000 and average income taxes = $10, 313.34
To summarize, if an employee receives $5,000 worth of benefits that may be perceived as being “free”, it will actually cost the employee $1,482.50 in additional taxes. Of course $1,482.50 for benefits with a value of $5,000 may be a good deal to some, however many people do not realize that there is a cost to benefits received.
Recent Government News
On October 10th, 2017, Revenue Canada made changes to the interpretation of tax policy relating to employee discounts. The announcement stated that employees would be taxed on the discounts they receive for merchandise they purchase. The value of the discount will be taxed.
Then, on October 11th, 2017, the federal government instructed Revenue Canada to remove the interpretation change from their website, which followed a great deal of controversy.
Justin Trudeau also Tweeted, “Let me be blunt: we are not going to tax anyone’s employee discounts.”
You may be asking, “Will this be the end of issues regarding employee discount?” The answer is probably not. The list of taxable benefits may grow over time.