Taxable Employee Benefits in Canada

Taxable benefits are perks your employees receive on top of their employment income. These can be provided as cash, near-cash items (such as stocks, gift cards, and securities), or non-cash items (such as products, services, or properties).

Usually, a benefit is taxable if an employee (or a family member) uses it for personal reasons. You can reimburse them afterwards or provide an allowance in advance based on estimated expenses.

As an employer, here are the taxable benefits in Canada you should know about:

Transportation

Automobile or motor vehicle (MV) benefits for employees using their vehicle

Car allowance is a taxable benefit if your employee uses their vehicle for personal activities. Also, any lump-sum or flat-rate auto allowance offered without considering the number of kilometres driven is taxable. 

The taxable benefit is the amount provided to your employee in a year. To track their kilometres accurately, employees can check the CRA mileage log requirements.

Automobile offered by the employer

If an employee uses an employer-provided vehicle for personal driving, the benefit is taxable. The value of the benefit is calculated as:

Standby charge + operating expense – reimbursements received from your employee for any standby charge or operating expense.

The standby charge is the benefit your employee receives for using your automobile for personal use. 

Operating expenses include oil, fuel, insurance, license, and repair and maintenance costs. 

Motor vehicle offered by the employer

Wondering when car allowance is taxable? When you provide a motor vehicle to your employee for work purposes, the benefit from using it for personal driving is taxable. The amount will be based on the personal kilometres driven. You can learn about vehicle allowance reimbursement rules in this article.

Moving and relocation costs

Moving or relocation expenses (inclusive of GST/HST) which you’ve paid or reimbursed your employees are taxable. If you offer a non-accountable moving allowance to help your employees move for work purposes, they don’t need to provide proof of receipts for moving costs of up to $650. However, any moving costs over $650 are taxable.

Parking

If you provide or reimburse your employees for parking costs, it’s generally a taxable benefit. The value of the benefit is the difference between the fair market value of parking costs and the payment made by the employee.

Transportation and airline passes

When you provide transportation or airline passes to your employees, these are considered taxable—unless you’re an airline or a transportation company. If taxable, the value of the benefit will be:

Taxable value of passes – reimbursements made by the employee.

This should be recorded on the T4 slip.

Transportation at a remote work location

The transportation allowance should be included as a taxable benefit if one of the following conditions isn’t met:

• The employee was at a remote workspace for at least 36 hours.
• They had to travel within or outside Canada.
• You or a third party offered board and lodging facility, or the related allowance to employees for that time.

The benefit exceeding the reasonable amount will be included in the employee’s income. 

Travel costs

These are separate from automobile or motor vehicle allowance or reimbursement. If an employee is not required to travel because of work, the travel benefit provided will be taxable. Also, if the allowance or reimbursement offered to employees is more than the actual travel expenses, the difference (exclusive of reimbursements made by the employee) is taxable.

Loyalty (or other points) programs

Typically, when your employees redeem points (including air miles or flyer points) earned on a credit card, they become taxable. The value of the benefit is the Fair Market Value (FMV) of the rewards in the year.

Accommodation

Board and lodging at remote work locations

A work location is considered remote when it is at least 80 kilometres from the nearest established community with a population of at least 1,000 people. This benefit is non-taxable if it’s reasonable and meets all of the following criteria:

• The location’s remoteness doesn’t allow the employee to set up or maintain a self-contained domestic unit by themselves.
• You didn’t offer the employee a self-contained domestic unit.
• The board and lodging or the related allowance was for at least 36 hours, provided either of the conditions is met: The employee was required to be at the remote work location, or was required to be away from their principal residence because of work.

The value of the benefit will be the cost of board and lodging exceeding the reasonable amount.

Board, lodging, housing, and utilities costs

This includes free or subsidized board and lodging allowance or reimbursement of house or utility costs. It also provides board and lodging allowances given to employees who are players on a sports team or members of a recreational program.

The housing benefit will be:

FMV of the accommodation – rent paid by the employee.

In addition, the utilities allowance or reimbursements are considered a taxable benefit.

Board, lodging, and transportation at a special work site in a prescribed zone

Employees who receive allowance or benefits for working at a special work site in a prescribed zone may exclude these benefits from their income. This applies to the work sites within 30 kilometres from the closest urban location with a minimum of 40,000 people.

You and your employee must fill Form TD4 (Declaration of Exemption - Employment at a Special Work Site) when the employee starts working at the special site. The exempt portion is reported under the ‘Other Information’ section of their T4 or T4A slip.

Housing and utilities costs offered to a member of the clergy or of religious order

If you’ve paid housing and utilities costs to an employee who is a clergy member, the benefit exceeding the clergy residence deduction is taxable.

Meal expenses

This consists of free, overtime (OT), and subsidized meals. If the cost of the OT meal is over $23.00 (inclusive of GST/HST and PST), the benefit is taxable. 
If you provide a subsidized meal to your employees in a staff cafeteria, the meals aren’t considered a taxable benefit as long as it’s a reasonable amount. If the cost for subsidized meals is unreasonable, the taxable benefit is the difference between the meal’s cost and the amount paid by the employee.

Insurance

Insurance plan

This includes premiums paid for group life insurance; a provincial or territorial hospital; medical care insurance; and Government of Canada employees. It also covers premiums for your employee’s physical and financial well-being and top-up disability payments.
Generally, the value of the group term life insurance benefit can be calculated as follows:
Premium payable + sales tax and excise taxes (excluding GST/HST) on insurance coverage + provincial insurance sales tax (if applicable) – premium and taxes paid or reimbursed by your employee.

Employee benefit plans

These cover death benefits, payments to an employee’s estate after their death, and superannuation or pension payments.

Savings and investments

Savings and pension plans

These include the following investment accounts:

• First home savings account (FHSA) 
• Pooled registration pension plan (PRPP) 
• Registered education savings plan (RESP) 
• Registered disability savings plan (RDSP) 
• Registered pension plan (RPP) 
• Registered retirement savings plan (RRSP) 
• Retirement compensation arrangement (RCA)
• Tax-free savings account (TFSA).

Generally, the contributions you make to your employees are taxable.

Stock options

The benefit becomes taxable when employees exercise or sell their company’s shares for profit in a given year. The benefit amount is the difference between the FMV of shares when they were acquired minus the amount paid or payable for their acquisition.

Health expenses

Disability-related benefits

If an employee with a severe and prolonged physical or mental impairment receives a reasonable allowance for transportation or attendant costs, the benefit remains non-taxable. If it exceeds reasonable costs, it becomes taxable. The value of the benefit will be the FMV of the services offered.

Medical expenses

The medical benefits you offer to an employee in a year are taxable. Generally, the value won’t include GST/HST and PST. However, if employees receive medical tax credits on specific expenses, you should include the sales taxes in the benefit’s value.

Fitness & recreation

Costs associated with recreational facilities (including exercise rooms, swimming pools, gym, tennis, squash, or racquetball courts, golf courses, shuffleboard facilities, and club dues for social activities, sports, and fitness clubs) are generally taxable. You can determine the benefit’s value by subtracting employee reimbursements from the benefit's FMV.

Education

Educational support

This includes scholarships, bursaries, training courses, and educational programs you offer to your employees.

It also covers free or reduced tuition fees, educational allowance, and free or subsidized school services offered to your employees’ family members.

The value of the taxable benefit is: 

FMV of the education benefit received – reimbursements made by your employee.

Professional membership dues

Professional membership dues are not taxable if you require your employees to be associated with a specific organization or are the primary beneficiary of their membership. However, if you don’t meet these criteria, it becomes taxable. You can determine the value of the benefit by subtracting employee reimbursements from the taxable dues you pay.

Phone & internet

Usually, cell phone and internet service allowances offered to employees are taxable. If your employee’s personal use of their cell phone (or internet service) results in the total cost exceeding the plan’s price, it will be taxable.

The value of the taxable benefit is:

FMV of employee’s personal use of cell phone or cell phone plan + FMV of employee’s personal use of internet plan – reimbursements made by your employee

Events

Event tickets

Tickets you offer your employees for entertainment events (such as sports games, art events, concerts) are generally taxable. However, the benefit is non-taxable if provided for business use and all of the conditions are met:

• The employee performed employment duties during the event
• You maintained records of the event tickets 
• You’re the primary beneficiary of the benefit

The value of the taxable benefit is:

FMV of the tickets received – reimbursements made by your employee.

Social events and hospitality functions

In-person social events such as seasonal or holiday parties or picnics that cost over $150 (inclusive of taxes) per person are taxable. 

For virtual events, if the total cost of meals, beverages, and delivery services is over $50 (inclusive of taxes) per employee, the benefit is taxable. 

If employees bring their spouses or common-law partners to the in-person event, include them in calculating the average cost per person. The value of the taxable benefit depends on the average cost per person.

Child care 

This benefit is taxable if any of the following criteria aren’t met:

• You offer services in your workspace.
• You directly manage the services.
• You provide services to all employees (not to the public) at no or minimal cost.

The amount of this benefit can be calculated by subtracting the FMV from any payments made by the employee. If GST/HST is involved, be sure to include it as well.

Gifts and awards 

If you offer gifts to employees on their birthdays, weddings, and the birth of a child, or awards to recognize their valuable contribution to the company, they are usually considered taxable. 

The value of the benefit is equal to the FMV of gifts and awards offered in the year. For non-cash gifts and awards, any value exceeding $500 should be considered a taxable benefit.

Miscellaneous

Counselling and tax preparation

If you cover the costs of financial counselling services or income tax preparation for your employees, it’s a taxable benefit. You can calculate the benefit’s value by subtracting reimbursements made by the employee from the FMV of the benefit they received.

Employee loans and debt

The interest benefit received on the following is generally taxable.

• Employee loans
• Home purchase/home relocation loans
• Shareholders’ loans

However, forgiven loans or debt are always taxable and must be included on the T4 slip in the year the loan is forgiven.

The calculations depend on the type of interest benefit received from the loan, and it’s important to check the CRA website for rules concerning each scenario.

Merchandise discounts 

Merchandise or services available to your employees at discounted rates are a taxable benefit. The value of the benefit is the difference between the FMV of the merchandise or service minus the price paid by the employee.

Tool reimbursements, allowances, and rental payments

If your employee owns tools required for performing their work-related duties, and you offer an allowance, reimbursement, or rental payment, that value is a taxable benefit.