Taxable benefits from your employer

When your employer pays for something personal for you, such as a gift card, a parking spot or a car you also drive on weekends, its value is usually added to your employment income, even though you never receive it as cash. Some common perks are tax-free because the law or a CRA policy exempts them.

How a benefit is taxed

A benefit is something personal your employer gives you or pays for, directly or for a family member, including an allowance or a reimbursement of a personal expense. Whether it’s taxable depends on whether you get an economic advantage that can be measured in money, and whether you’re the main one who benefits. Your employer values it, generally at fair market value (what it would cost on the open market), and reports it on your T4 slip.

Gifts and awards

A gift or award of cash, or of anything that works like cash, is always taxable. That includes cheques, prepaid cards from payment networks such as Visa, Mastercard or American Express, securities, and gift cards that don’t meet the CRA’s conditions below.

Non-cash gifts and awards get a break under a CRA policy. Gifts for a special occasion, such as a birthday, a wedding or a religious holiday, and awards that recognize your overall contribution to the workplace are tax-free up to a combined $500 a year, including taxes. Only the amount above $500 is taxable. A gift card counts as non-cash if it comes preloaded, works only at the retailer or group of retailers named on it, its terms say the balance can’t be converted to cash, and your employer keeps a log of the cards it gives out. Small items such as a mug, a T-shirt or a plaque don’t count toward the $500.

A long-service award has its own, separate $500 limit if it recognizes at least five years of service and it’s been at least five years since your last one. A reward for job performance, such as meeting a sales target, is fully taxable. The policy also doesn’t apply if you don’t deal at arm’s length with your employer, for example if you’re a relative or a shareholder.

Health, dental and life insurance

Your employer’s contributions to a medical or dental plan that meets the conditions for a private health services plan aren’t a taxable benefit federally. Premiums your employer pays for group term life insurance on your life are a taxable benefit. So are premiums for a non-group (individual) sickness, accident or disability plan.

Parking

Free or discounted parking is generally taxable, valued at what a similar spot nearby would cost. It’s tax-free when:

• you regularly need your vehicle for your job, which the CRA takes to mean an average of at least 3 days in a 5-day week, for things like service calls or visiting other worksites (driving between home and the office doesn’t count; if you need it less often, the benefit can be reduced in proportion)
• the lot is at a shopping centre or industrial park, is open to the public, is free, and the spaces aren’t assigned
• there are spaces for no more than 2 of every 3 employees who want one, the spaces aren’t assigned, and they’re offered to every employee who wants parking

Cell phones and internet

A phone your employer owns and requires you to use for work isn’t a taxable benefit. Neither is a service plan your employer provides or pays for, as long as you need it for work, it has a reasonable fixed cost, and your personal use doesn’t push the bill above the plan price. A cell phone allowance is always taxable, and so is a reimbursement for a phone you bought yourself. If your employer pays for your home internet, the personal-use share is taxable.

Transit passes

A transit or airline pass from your employer is generally taxable. The main exceptions are free or discounted passes that a bus, streetcar, subway, commuter train or ferry company gives employees who work in its transportation business (for a ferry, walk-on fares only), and standby passes an airline gives its employees for personal travel.

A company car

If your employer makes a car available to you and you drive it for personal reasons, including between home and your regular place of work, the benefit has two parts: a standby charge, based on the car’s cost (or lease cost) and how long it was available to you, and an operating expense benefit if your employer pays costs such as fuel and insurance for your personal driving. The standby charge can be reduced if your employer requires you to use the car for work, more than half your kilometres are for work, and your personal kilometres stay within a limit, so keep a logbook and give your employer a copy. If you use the car only for work and return it to your employer’s premises at the end of each workday, there’s no taxable benefit.

Meals

Free or subsidized meals are generally taxable. Exceptions include a reasonable overtime meal or meal allowance when you work 2 or more hours of overtime right before or after your shift and overtime is occasional (generally less than 3 times a week), and staff cafeteria meals where you pay a price that covers the food, its preparation and service. Meals during business travel or at a work social event may not be taxable either.

Courses and training

A course your employer pays for isn’t taxable if your employer is the main beneficiary, for example one that maintains or upgrades skills you use in your job. The CRA also treats other business-related courses, such as first aid, stress management or language training, as mainly for the employer’s benefit. A course taken mainly for your own interest, unrelated to your employer’s business, is taxable. If your employer paid for a course tax-free, you can’t claim the tuition credit for it.

Where benefits show on your T4

Taxable benefits are already included in box 14 (employment income) on your T4 slip. They’re also listed in the “Other information” area, usually as code 40 (other taxable allowances and benefits); a company car benefit uses code 34. Don’t add them to your income a second time when you file.

Why your pay stub shows tax on them

Your employer includes a taxable benefit in the pay period you receive or enjoy it and generally withholds income tax and CPP contributions on its value. EI premiums are withheld only on benefits paid in cash, not on non-cash or near-cash ones such as parking or a gift card. That’s why a pay stub can show more tax in a period when no extra money reached your account. For how each deduction works, see reading your pay stub; one-time payments are covered in how bonuses are taxed.

If you work in Quebec

Revenu Québec applies its own rules for Quebec income tax, and your employer reports benefits on an RL-1 slip as well as your T4. One difference to know: your employer’s contributions to a group insurance plan, including a private health services plan that covers medical or dental costs, are a taxable benefit for Quebec tax, even though contributions to a private health services plan aren’t taxable federally. (Contributions for wage-loss coverage paid out periodically are an exception.) For private health services plan coverage, the value is included in box A of your RL-1 and also shown in box J.

What to do

• Compare box 14 and the code 40 or 34 amounts on your T4 with what you received during the year.
• If you have a company car, keep a logbook of business and personal kilometres.
• To see what a benefit adds to your tax, enter your T4 income in the income tax calculator.