Benefits and allowances
There are many types of benefits and allowances that you may have to include in an employee's income. Whether or not they are taxable depends on the type of benefit or allowance and the reason an employee receives it.
Your employee is considered to have received a benefit if you pay or provide something to him or her that is personal in nature. A benefit can include:
- a reimbursement of personal expenses;
- free use of property, goods, or services owned by you; or
- an allowance.
When you provide a benefit to your employee you may have to include the value of it in the employee's income. Whether or not the benefit is taxable depends on its type and the reason an employee receives it.
The benefit may be paid in cash (such as a meal allowance or reimbursement of personal cellular phone charges), or provided in a manner other than cash (we call this a non-cash benefit), such as a parking space or a gift.
Once you determine that the benefit is taxable, you need to calculate the value of the benefit.
The value of a benefit is generally its fair market value (FMV). This is the price that can be obtained in an open market between two individuals dealing at arm's length. The cost to you for the particular property, good, or service may be used if it reflects the FMV of the item or service.
You must be able to support the value if you are asked.
Add the taxable benefits and allowances to the employee's income each pay period to determine the total amount that is subject to source deductions. The benefits and allowances may be subject to CPP contributions, EI premiums and income tax deductions.
Forms and publications
- Guide T4130, Employers' Guide - Taxable Benefits and Allowances
- Interpretation Bulletin IT470R, Employees' Fringe Benefits
- Guide T4001, Employers' Guide - Payroll Deductions and Remittances
- Guide RC4120, Employers' Guide - Filing the T4 Slip and Summary
- Guide RC4157, Deducting Income Tax on Pension and Other Income, and Filing the T4A Slip and Summary
- Video series: Payroll Information for a New Small Business
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