In the current environment of decreasing unemployment rate and labour shortages in various industries, 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, there are many benefits and allowances that can be provided to an employee on a non-taxable basis.
The Canadian Revenue Services (CRA) defined a benefit as goods or services that you give or provide your employees (or a close relative of the employee - spouse, child or sibling), that is personal in nature. Benefits include allowances and reimbursement of an employee's personal expense.
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
You can provide your employees with a cell phone that you own to carry out his or her work, the cost of the device is not considered a taxable benefit. However, if you reimburse your employees for the cost of your employee’s own device, the cost is considered a taxable benefit to the employee.
For cell phone and internet usage services, you can reimburse your employees for the service cost to help them carry out their work. The reimbursement for the service costs is considered non-taxable.
2. Education and Professional Development Costs
Education costs, including tuition, textbooks, meals, travel, and accommodations, specifically related to upgrading or maintaining your employees’ skills are non-taxable benefits. 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 benefit of the employer and are considered a non-taxable benefit.
Education costs reimbursed for personal interests and not related to employment are considered a taxable benefit.
3. Professional Dues
Professional dues reimbursed to your employees that benefit you as the employer are considered a non-taxable benefit.
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/recreational facility or arrange for your employees to have the use of a recreational facility, the costs covered are not considered taxable benefits if the employer is the primary beneficiary.
5. Gifts and Awards
Generally, non-cash gifts and awards under $500 annually are non-taxable benefits. Trivial gifts such as a 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, 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 amount of 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 employees’ 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.
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 are 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 considered non-taxable benefits for your employees.
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, in the event that a claim is filed by the employee and disability insurance benefit is received by the employee, the benefit is taxable to the employees.
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 confused about benefits, payroll and the tax act, we can help! At Enkel, we can help you manage your company's payroll and deal with the taxes! Contact us to learn more about how we can help you.