What’s taxable, what’s not, when it comes to benefits

A look at common and not-so-common benefits such as professional dues, meals, parking, gifts

Nobody likes unexpected tax surprises. When it comes to the employment relationship, an error in taxable benefits that results in an employee having to fork over extra cash can be a damaging one. Fortunately, taxable benefits aren’t that complicated — as long as employers follow, and stay up to date with, the rules.

All income, cash (bonuses) and non-cash benefits are taxable with very few exceptions. The tax treatment depends on the type of the benefit and the reason the employee receives it.

Common non-taxable benefits

Well-known, non-taxable medical benefits include group sickness, accident insurance, extended health-care premiums (paid to private plans) and counselling fees (related to wellness, mental or physical health of the employee or persons related to the employee). Other non-taxable benefits include:

• Professional dues, where the membership is a condition of employment or the employer is the main beneficiary of the payment. When an employer reimburses an employee’s membership dues, the employee is entitled to a deduction on his personal tax return.

• Tuition fees, provided the courses are for the purpose of maintaining or upgrading employment-related skills that are mainly for the employer’s benefit.

• Special clothing, including safety footwear and distinctive uniforms.

• Laundry or dry cleaning of uniforms. Employers may pay a reasonable allowance or reimburse an employee when she presents a receipt.


Other non-taxable perks from an employer must meet certain criteria to ensure they don’t transform into taxable benefits.

• Social events, as long as they’re provided to all employees and the cost is not more than $100 per person (limited to six per year). The $100 threshold does not include ancillary costs such as transportation home, taxi fares and overnight accommodations. If the cost exceeds the threshold, the entire amount is taxable, including the ancillary costs.

• Subsidized meals provided at a “reasonable cost.” This is defined as an amount that covers the cost of the food, its preparation and service.

• Parking, where the employer operates from a shopping centre or industrial park and the parking is available to both employees and non-employees. Or the parking is unassigned and on a first-come, first-serve basis and there are fewer spaces than there are employees who require the parking. Or when it is for business purposes and employees regularly have to use their vehicles to perform their duties. Or for disabled persons who are legally blind or have a severe and prolonged mobility impairment that markedly restricts their ability to perform basic activities of daily living.

• Transportation to and from work for disabled persons.

Lesser-known taxable benefits

• Gifts. All cash, non-cash and near-cash gifts (gift certificates or gift cards) are taxable benefits. (Yes, that gift certificate for a Christmas turkey is taxable.) Canada Revenue Agency (CRA) considers gift certificates to be near-cash items that can be easily converted to cash and, therefore, they fall under the same rules as wages and salaries.

• Premiums for life insurance.

• Medical premiums paid to a public medical insurance plan or hospitalization plan.

• Medical expenses — a non-refundable tax credit can be claimed on the employee’s personal tax return.

• Transportation to and from work. This does not include transportation to a special work site or remote work locations.

• Overtime meals or meal allowances, if provided on a frequent basis. They are not taxable if the meals are infrequent and only provided after the employee has worked three or more hours of overtime.

• Financial counselling or tax return preparation fees, unless counselling is for the employee’s re-employment or retirement.

• Cellphone and Internet service, unless the purpose is to help the employee carry out her duties. If any part of the phone use is personal, the value of it should be included in the employee’s income.

• Business trips — when a spouse or common-law partner accompanies the employee, any amounts reimbursed for those costs are a taxable benefit. They are not taxable if the spouse was mostly engaged in business activities during the trip and attended at the request of the employer.

• Recreational facility membership or club dues. Any amounts paid, subsidized or reimbursed for these costs are taxable. However, the use of recreational facilities is not taxable if you provide an in-house facility or pay an organization for the memberships for all employees.

Gifts and awards: In recent years, CRA has loosened its policies regarding gifts and will allow an employee to receive up to two non-cash gifts per year for special occasions, provided the total cost of the gifts does not exceed $500 (including taxes). In addition, two non-cash awards are allowable for employment-related accomplishments. However, if the total exceeds the $500 threshold in either area, the entire amount becomes a taxable benefit.

Additionally, if employees have a wide selection of choice in their gifts or awards, CRA will deem these to be gift certificates (even though they cannot be converted to cash) and fully taxable.

Automobiles: CRA auditors will almost always scrutinize auto deductions, allowances and standby charge calculations — the rules are complex and rigid and make for “quick pickings” for auditors.

For employee-owned vehicles, per-kilometre allowances are non-taxable if considered reasonable. The allowance should be based on the number of kilometres driven for business. Keep in mind the full amount of the allowance is taxable if it exceeds the CRA maximum or is based on a flat rate. In those cases, the employee would be permitted to write off the costs of the business use of his personal auto on his tax return, provided he receives employer certification in the form of a signed T2200 form.

One of the most susceptible areas for audits is personal use of a company vehicle. Any time an employee has the use of a company vehicle (owned or leased) for personal use, she is deemed to be in receipt of a taxable benefit. These benefits can be substantial because part of the benefit is based on the capital cost of the vehicle regardless of its depreciated value. In addition, operating expenses also serve to increase the benefit.

For more information, check out the T4130 Guide to Taxable Benefits in the “Forms and Publications” section of the CRA website at www.cra-arc.gc.ca.

Gloria Munro is a certified general accountant and principal of Burnaby, B.C.-based Munro and Company, a firm offering small business tax and accounting services. She can be reached at (604) 434-6620 or [email protected].

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