Any time a gift, award, perk, or other benefit is provided to an employee in Canada, it may be considered additional compensation beyond their regular salary or wages – a taxable benefit. This creates several potential Canadian tax issues for the employer.
First, it can be challenging to determine if an item supplied to an employee is a taxable benefit for Canadian income tax purposes. Any good or service given to an employee that is personal in nature and has an economic value could be considered a taxable benefit, whether it is provided directly, arranged through a third party, or paid through an allowance or expense reimbursement.
When it has been determined that an employee received a taxable benefit, the value of the benefit must be calculated. This will generally be the fair market value of the benefit, including any GST/HST and PST payable by the employer (or PST that would have been payable had the employer’s purchase not been exempt). Once the value of the benefit has been determined, an employer must add that amount to the employee’s income, calculate the appropriate payroll deductions, and report the value of the benefit on the employee’s T4 or T4A information slip.
In addition, employers are required to remit GST/HST or QST on the value of certain taxable benefits provided during a calendar year. This requirement is often overlooked by employers and is routinely audited by the Canada Revenue Agency and Revenu Québec.
The GST/HST or QST remittance related to taxable benefits must be reported on the return covering the last day of February in the year following the previous calendar year, so now is the time to ensure your organization is compliant for 2020. For monthly filers, the sales tax remittance will be due with the February return on March 31, 2021.
The deadline to issue employee T4 and T4A slips for 2020, including taxable benefit information, is February 28, 2021.
There are several ways Ryan can help manage your organization’s Canadian taxable benefits compliance.
Ryan’s Employee Benefits Can Be Taxing article discusses the rationale behind the GST/HST and QST requirements for taxable benefits, identifies exceptions to those requirements, and provides examples on how to calculate taxable benefits and GST/HST remittances, as well as the rates and factors to be used for 2020.
Our two on-demand webinars provide advice on common taxable benefit situations and examine the rules concerning the remittance of GST/HST and QST on various types of taxable benefits.
The Sales Tax Implications of Taxable Benefits
Don’t have time to attend a webinar or read the article? Ryan can still help you meet your taxable benefit deadlines. To connect with our professionals regarding your Canadian taxable benefits questions, please contact Ryan TaxDirect ® at 1.800.667.1600 or firstname.lastname@example.org.