Taxable and Non-taxable Benefits in Canada
When starting a new job or negotiating compensation, traditional thinking revolves around securing as high a salary as possible. However, employees are susceptible to overlooking the benefits and perks that can impact their financial well-being. Now, more than ever, benefits are a big part of recruitment and retention for companies. Nearly 4 in 5 people reported that benefits and perks are among their top considerations before accepting a job.
As a result, companies are starting to beef up their employee perks. Businesses like Google are known for offering over the top perks like lunches made by professional chefs, massages, and haircuts. We can’t all be so lucky but there are many benefits that can make your life easier.
“Employers are looking for new ways to keep employees engaged which is leading to new kinds of benefits and incentives at work,” says Caroline Battista, senior tax analyst, H&R Block Canada. “However, this does not mean that your employer can offer an incentive that allows you to avoid paying income tax. Many of these employee benefits are reported on your T4 slip and may even bump you into a higher tax bracket”[1]
In order to maximize your employer’s offerings, it’s important to know what benefits are out there and how taxation affects the bottom line.
What is a taxable benefit?
The Canada Revenue Agency (CRA) states that any benefit an employee receives with monetary value is considered taxable if it is personal in nature such as a reimbursement of personal expenses, goods or services owned by the company, or an allowance.
For updates and more information visit the CRA website. Let’s take a quick look at some common benefits and whether they are taxable or not.
Common Benefits
Gifts or Awards: Gifts or awards are non-taxable if they have a fair market value of less than $500. Any gift or award given with a value greater than $500 is subject to taxation.
Group Benefits: Life, accident and critical illness insurance coverage are taxable. But, when the company pays all or part of the cost of your Health Spending Account, dental plan, short-term disability or long-term disability insurance you do not pay tax on the premiums.
Mobile Phone: If your employer provides you with a work phone, it is considered non-taxable as long as the cost of the cellphone plan is reasonable and you do not incur costs for personal use beyond the basic fee for the plan. However, if you are reimbursed for the cost of your own personal cell, it is taxable.
Moving Costs: Moving expenses that fall under the CRA’s list of “Moving expenses paid by employer that are not a taxable benefit” are not taxable. Any other moving costs are generally considered taxable.
Parking: Parking is usually a taxable benefit to an employee. The amount of the benefit is based on the value of the parking spot minus any payment the employee makes to use the space. However, parking is non-taxable if you have a disability.
Public Transportation: Transit passes are a taxable benefit unless the employee works in a transit-related business (such as a bus, train, or ferry service business)
Recreational Activity or Clubs: If the employer pays all or part of the cost of membership at a recreational facility such as a gym or pool, it is considered a taxable benefit. If the employer provides a free or onsite facility available to all employees, it is not a taxable benefit.
RRSP: Income you earn in your RRSP is usually exempt from tax as long as the funds remain in the plan. You usually have to pay tax when you receive payments from the plan. (Insert link to Ratehub article on RRSP’s)
Tuition Reimbursement: Tuition is non-taxable if you are enrolled in training or education that is of primary benefit to your employer.
For a full list of taxable and non-taxable benefits in Canada, see the CRA benefits and allowances chart.
[1]https://www.timescolonist.com/canadians-unaware-of-taxable-benefits-1.1694143