The Key Components to Setting Up Payroll: Part 7 – Taxable Benefits

5 mins read

This article is written to provide you information on taxable benefits as they relate to payroll.

A taxable benefit is a payment to an employee from their employer that is an additional benefit or incentive which is in the form of cash or another form of compensation method that is non-cash. In Canada, there are a large number of benefits and incentives that are considered taxable benefits, which means that they must be reported when an employee files their income tax.

As an employer, when you provide supplementary cash/non-cash benefits or incentives to employees as a means of compensation, whether it be paid to or on behalf, you are responsible to ensure that the value of these supplementary benefits, including any taxes that may apply, are calculated into payroll and deducted accurately, which must meet CRA’s (Canada Revenue Agency) criteria. In the event this does not happen, the employer and employee could face an audit with a CRA auditor – leading to financial penalties on one or both parties.

Common Taxable Benefits:

    • Living Allowances (Meal, Rent, Camp, Northern, etc.)
    • Travel Allowances (Drive In/Drive Out, Fly In/Fly Out, Vehicle, Mileage Expense, etc.)
    • Gifts and Awards (Gift Cards or Spot Bonus Awards) – Over $500 per year
    • Housing Allowances (Mortgage Interest, Down Payment, Relocation, etc.)
    • Parking Allowance
    • Group Benefits Premiums (Health, Dental, Life Insurance, Critical Illness, etc.)
    • Professional Member Dues
    • Group RRSP Contributions
    • Educational Assistance Program

The list is quite intensive; however, the list above is the most common that employers provide to employees as an incentive to work for them. To put it simply, any quantitative values part of an employee’s Total Rewards package that are supplementary to their regular earnings are taxable benefits.

The value of a benefit is generally referred to as its fair market value (FMV), which is the price obtained in an open market between two individuals dealing at arm’s length. The cost for the particular property, good, or service may be used if it reflects the FMV of the item or service. Supporting documentation may be needed for the value of the benefit assigned.

Once the value of the benefit, including any taxes that may apply, is determined, add this amount to the employee’s income for each pay period or when the benefit is received. This gives the total amount of income subject to payroll deductions. The employer then withholds deductions from the employee’s total pay in the pay period in the normal manner. The deductions withheld, especially the employment insurance premiums, depend on whether the benefit provided is cash or non-cash.

It might seem daunting at first when it comes to defining what is considered taxable benefits, however, the CRA has valuable resources and tools available to support businesses in ensuring the appropriate deductions are calculated. If you require any assistance, we recommend reaching out to your business’s accountant or, as always, feel free to speak with a BIG Representative.

Please stay tuned for part 8 of this series when we discuss Statutory Deductions (CPP, EI, and Income Tax).

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