It’s T-4 time (again)! Trying to determine what qualifies as a taxable benefit or allowance is complicated! Then you have to determine whether you should deduct CPP and EI. What about GST/HST – should you include the tax in the value of the taxable benefit for income tax purposes? T-4 time can be like opening the proverbial Pandora’s Box. Stay with us, this will help!
Canada Revenue Agency (CRA) has developed a comprehensive guide beginning with the definition of “benefit”, “allowance” or “expense reimbursement”. It’s a great place to start! You’ll discover how to determine if the benefit is taxable, how to calculate the value of the benefit, calculate payroll deductions, and file an information return.
Employers’ Guide – Taxable Benefits and Allowances
When calculating the value of the taxable benefit you may have to include GST/HST. Here is a helpful Benefits and Allowances Chart to make your job a little easier.
Benefits and Allowances Chart
What is an Employee Benefits, Allowances or Expense Reimbursement?
Your employee has received a benefit if you pay for or give something that is personal in nature:
- directly to your employee
- to a person who does not deal at arm’s length with the employee (such as the employee’s spouse, child, or sibling)
A benefit is a good or service you give, or arrange for a third party to give, to your employee such as free use of property that you own. A benefit includes an allowance or a reimbursement of an employee’s personal expense.
An allowance or an advance is any periodic or lump sum amount that you pay to your employee on top of salary or wages, to help the employee pay for certain anticipated expenses without having them support the expenses. An allowance or advance is:
- usually an arbitrary amount that is predetermined without using the actual cost
- usually for a specific purpose
- used as the employee chooses, since the employee does not provide receipts
An allowance can be calculated based on distance, time or something else, such as a motor vehicle allowance using the distance driven or a meal allowance using the type and number of meals per day.
A reimbursement is an amount you pay to your employee to repay expenses they incurred while carrying out the duties of employment. The employee has to keep proper records (detailed receipts) to support the expenses and give them to you.
The Employers’ Guide to Taxable Benefits and Allowances also provides in-depth information on:
- Automobile and motor vehicle
- Board and lodging
- Gifts and awards
- Group term life insurance policies
- Interest free or low-interest loans
- Meals
- Security options
- Tool reimbursement or allowance
- Transit passes
- Tuition fees
Need more help? Head on over to our Bookkeeping, Payroll, GST/HST page and learn more about the anything but ordinary services we offer! Contact The Art of Accounting in Burlington today so you can have a better tomorrow!