Employee Benefits – Some Tips and Traps

Employee Benefits – Some Tips and Traps

The question of what items provided to an employee by an employer often arises.  Below we have listed (please note this is not an all inclusive list) a number of items which may or may not have to be included on an employee’s T4 and taxed by the government.  Always remember to read the fine print!!!  You should remember that if the items are a taxable benefit then they may impact the company portion of other payroll taxes such as CPP, EI, EHT and/or WSIB.

Christmas parties and other special events

Did you provide your employees with a Christmas party this year? In general, no taxable benefit will have to be reported for social events that are made available to all employees, provided the cost per employee is $100 or less. Parties costing more than that will generally be considered to be beyond the “privilege” point and may result in taxable benefits.

Non-cash gifts and awards

The CRA’s administrative policy for non-cash gifts and awards is as follows:

  • Non-cash gifts and non-cash awards (watch out for gift cards as these are likely taxable) to an arm’s-length employee, regardless of number, will not be taxable to the extent that the total aggregate value of all non-cash gifts and awards to that employee is less than $500 annually. The total value in excess of $500 annually will be taxable.
  • In addition to the above, a separate non-cash long- service/anniversary award may also qualify for non- taxable status to the extent its total value is $500 or less. The value in excess of $500 will be taxable. To qualify, the anniversary award cannot be for less than five years of service, and it must be five years since the employee last received a long-service award.
  • Items of an immaterial or nominal value, such as coffee, tea, T-shirts with employer logos, mugs, plaques, trophies, etc., will not be considered a taxable benefit to employees and will not be included in the above $500 threshold.
  • Performance-related rewards (for example, for meeting a sales target) and cash and near-cash awards (such as gift certificates) will continue to fall outside the administrative policy and will be taxable to the employee.
  • All gifts and awards to non-arm’s-length employees will be taxable.

Employer-paid professional membership fees

In general, the payment of a professional membership fee will not be considered a taxable benefit if the employer is the primary beneficiary of the payment. The employer will be considered the primary beneficiary whenever membership in the association is a requirement of employment. In a situation where membership is not a condition of employment, the question of the primary beneficiary must still be resolved. The employer is responsible for making this determination.

Group sickness or accident insurance plans

Generally, wage-loss replacement benefits payable on a periodic basis under a group sickness or accident insurance plan to which an employer has contributed are included in an employee’s income for tax purposes when those benefits are received. However, no amount is included in the employee’s income when the employer contributions are made. This is in contrast to the situation where employer contributions are made to a non-group plan. In this case, the contributions are taxable to the employee when they are made, but no amount has to be included in income when an amount is received under the plan. In both cases, the premiums paid are deductible by the employer.

For coverage after 2012, premiums paid by an employer to a group sickness or accident insurance plan where benefits are paid on a lump-sum basis will be a taxable benefit to the extent the contributions are not in respect of a wage loss replacement benefit payable on a periodic basis. This change is likely intended to catch plans that provide for the payment of a lump-sum amount in the event that the insured individual is diagnosed with a critical illness. As noted above, if the policy was considered a group sickness or accident insurance plan, then the employer-paid contributions would have been deductible, while the lump sum benefit received by the employee would not be taxable.

Non-taxable benefits

Although many benefits received by virtue of employment are taxable, the following benefits are not taxable:

  • reimbursement of certain moving expenses, including reasonable expenses related to the reinstallation of services and connection of appliances, as well as the modifications required to install moved property
  • reimbursement of a loss from the disposal of an employee’s residence subsequent to a move at the employer’s request, up to a maximum of $15,000
  • an expense allowance paid to a member of a municipal organization, to the extent that it does not exceed one-third of the remuneration and allowance received
  • the employer’s contributions to a private health services plan
  • the employer’s contributions to an RPP, a supplementary employment benefit plan or a DPSP
  • discounts granted to all employees
  • use of the employer’s recreational facilities, subject to certain conditions
  • subsidized meals, provided the employee is required to pay a reasonable amount for the cost of food
  • meals or meal allowances of up to $17, where an employee works two or more hours of overtime before or after regular hours, and the overtime is infrequent or occasional
  • uniforms and special clothing required for work
  • transportation to the work location where such transportation is provided by the employer
  • meals, lodging and transportation when an employee is performing duties at a remote location or, in some circumstances, at a special work site
  • certain transportation passes to employees of bus, rail or air companies
  • counselling services relating to mental or physical health, re-employment or retirement of an employee
  • allowances paid to a part-time employee for travel expenses, provided that the employee holds another job or carries on a business, the amount is reasonable and this part-time function is performed at a location not less than 80 km from his or her normal place of residence and principal place of employment
  • travel expenses incurred by an employee’s spouse, when his or her presence is required by the employer and he or she has a role to play in achieving the business objectives of the trip
  • transportation and parking expenses paid by the employer to a blind or motor-impaired employee
  • membership dues to a sports club paid by the employer, provided it’s principally for the employer’s own advantage
  • Internet services made available to employees, to the extent that they use it in carrying out their work or when such use mainly benefits the employer
  • loyalty points collected on an employee’s personal credit card for business expenses (where the employee is reimbursed for such expenses), as long as the points are not converted into cash and are not indicative of an alternative form of remuneration
  • reimbursement of childcare expenses by an employer to an employee if the employee is required to work out of town at the request of the employer