With labour shortages in various industries prevailing, providing a competitive pay package to employees can make the difference in securing a highly sought-after candidate for your company. In Canada, an employee’s salary and wages received in cash are taxed as employment income and included on an employee’s T4 slip for tax filing purposes. However, employers can provide many benefits and allowances to an employee on a non-taxable basis.
The Canadian Revenue Agency (CRA) defines a benefit as goods or services that you give or provide to your employees (or a close relative of the employee - spouse, child, or sibling) that are personal. Benefits include allowances and reimbursement of an employee's expenses. Benefits can be cash benefits, near cash benefits, and non-cash benefits. Many benefits can be taxable or non-taxable depending on the specific circumstances of their issuance. For instance, overtime meals are non-taxable if their cost is reasonable and overtime occurs infrequently.
In this article, we will talk about the top 10 non-taxable benefits that you, as an employer, may provide your employees.
Top 10 Non-Taxable Benefits
1. Cell Phone and Internet Services
When you provide your employees with a cell phone that you own to carry out their work, the cost of the device is not considered a taxable benefit. However, if you reimburse your employees for the cost of their device, the cost is considered a taxable benefit to the employee. An allowance for cell phone services is also considered a taxable benefit.
You can reimburse your employees for the service cost of cell phone and internet services to help them carry out their work. The reimbursement for the service costs is considered non-taxable if you require employees to use a cell phone to complete their work, the plan has a reasonable fixed cost, and employees' usage of these devices does not add to the cost of the phone plans.
2. Education and Professional Development Costs
Education costs related to upgrading or maintaining your employees’ skills are non-taxable benefits. These include tuition, textbooks, meals, travel, and accommodations. Education costs for general employment training, such as general business courses, stress management, first aid, employment equity, and language courses, are generally considered to be for the employer's benefit and are considered a non-taxable benefit.
Education costs reimbursed for personal interests and not related to employment are considered a taxable benefit. For example, education costs for an improv comedy course or a silent meditation retreat would fall into this category.
3. Professional Dues
Generally, professional membership dues are considered a taxable benefit, but professional dues reimbursed to your employees that benefit the employer are deemed non-taxable benefits. This would be the case if membership in a professional organization is a condition of employment or if you, the employer, have determined that you are the primary beneficiary of this membership.
4. Recreational Facilities and Club Dues
Keeping your employees healthy through fitness can greatly enhance productivity and staff morale. If you provide an in-house gym or recreational facility or arrange for your employees to use a recreational facility, the costs covered are not considered taxable benefits if the employer is the primary beneficiary. In-house recreational facilities that you provide to all employees are a non-taxable benefit. Social or fitness club memberships are non-taxable if you can demonstrate that you, the employer, are the prime beneficiary.
5. Gifts and Awards
Generally, non-cash gifts and awards under $500 annually are non-taxable benefits. Trivial gifts such as corporate logo clothing, mugs, and coffee will not count towards the $500 limit.
As a reward for long-serving employees, you may reward your employees every 5 years with non-cash gifts up to a maximum of $500. These long-service awards are also tax-free. The long-service award does not count towards the annual $500 limit.
6. Automobile Allowances
You can reimburse your employees a reasonable automobile allowance as long as it is based on the business usage mileage at a reasonable CRA-prescribed mileage rate. You can use the CRA's automobile benefits online calculator to calculate the benefit accordingly. A rate that is considered unreasonable will be included in the employee’s income. Parking spaces provided to your employees are also taxable, provided your employee is disabled or regularly requires a vehicle for business purposes.
7. Counselling Services
Employees can receive counselling services as a non-taxable benefit if it is for the purposes of re-employment, retirement or physical/mental health. Specifically, mental health services include counselling for stress management or tobacco, drug, or alcohol addiction.
8. Loyalty Points
Credit card loyalty points earned from business expense reimbursements are generally not taxable to the employees. However, if the points are converted into cash or earned as part of a tax-avoidance arrangement, the value of the points will be considered a taxable benefit.
9. Private Health Services Plan
The premium you pay on behalf of your employees for a private health and dental services plan is a non-taxable benefit for your employees if it is a group plan. A private health services plan becomes a taxable benefit if you offer it to individual employees as a non-group plan.
10. Short-Term and Long-Term Disability Insurance
The premiums you pay on behalf of your employees for short-term or long-term disability insurance are not taxable benefits. However, if a claim is filed by the employee and disability insurance benefit is received by the employee, the benefit is taxable.
For more information, you can use the CRA's T4130 Employer's Guide for a comprehensive list of non-taxable benefits, as well as taxable benefits. Some taxable benefits will require GST/HST to be included. After you've calculated the value of the taxable benefits and the GST/HST, you will have to calculate payroll deductions.
If you're still unsure about benefits, payroll, and the tax act, we can help! At Enkel, we can help you manage your company's payroll and handle the tax-related matters! Contact us to learn more about how we can help you.
