It is important to understand your tax position (and the position of your employees) when providing benefits to your workforce. As an employer, you must report premiums paid for certain group benefits. The value of some benefits is considered taxable, so which employee benefits are taxable in Canada and which ones aren't?
Some employee benefits are taxable in Canada, here are some common benefits and how the Canada Revenue Agency treats them.
Group Life Insurance
Employer-paid premiums for group life insurance (including accident and critical illness insurance) are considered taxable benefits. The amounts paid on your employee’s behalf will need to be added to their taxable income at the end of the year. Employees may be able to claim health insurance premiums that they paid for as a tax credit.
Group RRSPs and Pension Plans
Employer contributions to a registered pension plan are not considered taxable. However, the amount contributed on behalf of an employee is viewed as taxable earnings that increase the employee’s income. As long as the employee has contribution room in their RRSP account, they can deduct the total amount contributed in the year the benefit was paid, or in a future year.
Group Short or Long-Term Disability
Employer-paid disability premiums are not considered taxable benefits. However, when an employer pays any amount towards an employee’s disability coverage, any benefits collected in the future will be taxable.
Cellphones or Equipment Outside the Office
Cellphones, computer equipment or other supplies provided by you to an employee to work from home or outside the office are not considered taxable benefits. CRA does not consider voice and data plans as a taxable benefit as long as the cost is reasonable, and the employee doesn’t incur extra charges for personal use. An employee can deduct expenses incurred if they must supply their own equipment used for work at home.
Tuition or training paid by an employer is not a taxable benefit if the employee requires this training to progress in their job. If an employer gives a scholarship or bursary to a child of an employee, neither the parent or the child is required to pay taxes on that amount.
Non-cash gifts are not taxable if the value of the gift is under $500. Incentive awards and performance bonuses are considered taxable income though.
Do you have questions about which employee benefits are taxable in Canada? Contact DENT Benefits today to learn more about tax-advantageous group benefit options.
The information in this material is derived from various sources. Material is provided for general information and is subject to change without notice. Every effort has been made to compile this material from reliable sources; however, no warranty can be made as to its accuracy or completeness. This article is not a substitute for tax advice from a licensed accountant. Please contact your accountant for tax advice before acting on any of the ideas above. Before acting on any of the above, please contact us for benefit, pension and insurance advice based on your corporate or personal circumstances.