The World of Taxable Benefits: The Summary of Payroll Podcast (Episode 1)

by | May 3, 2023

Welcome to Yogi & Associates‘ site, where you can learn whether employee benefits are taxable. We’re here to help you comprehend the tax benefits. We’ll go into the first edition of the CRA Payroll Podcast and review all the crucial information. We have explained everything so that you comprehend the taxable benefits. Let’s start now!

1. What are Taxable Benefits?

According to the CRA, taxable benefits mean “A benefit where an employee receives an economic advantage that can be measured in money such as cash or a different type of payment like a gift certificate.” 

A taxed benefit is a positive benefit given to an employee by his employer for his performance. The use can be in cash, goods, services, or any other sort of payment. It is like a cherry on top for the employees who get it.

Note:

Only giving taxable benefits to employees who deserve them is the employer’s duty. The employee must pay taxes on those benefits that are taxable.

2. Methods of Taxable Benefits:

There are two ways to provide the benefits with tax:

1. Allowances.
2. Reimbursements.

Allowances:

This method includes giving a lump sum amount to the employees. So, the employee uses the money according to their needs.

For example, if an employee travels for work, you can provide him with a daily allowance to reduce the expense of their meals. Additionally, if the employee has been using the company car for business purposes, you can estimate the fuel costs for those days and give the employee a petrol card.

Reimbursements:

It operates in direct opposition to allowances. The employee provides the employer with a receipt for the meal they consumed or the petrol they used. The employer examines the ticket and pays the specified sum in full.

3. The List of the Taxable and Non-taxable Benefits:

The Taxable Benefits:

The following are considered as benefits which are taxed:

1. Work vehicles used by the employees.
2. Facilities like housing, complimentary meals, and lodging.
3. Cost of raising children.
4. Internet and mobile devices.
5. Gifts of more than $500 per year.
6. Parking.
7. Transit tickets
8. Meals.
9. Travel costs.
10. Vacation travel.
11. Premiums for life insurance.

The Non-taxable Benefits:

The following are the benefits which are non-taxed:

1. A prize or non-cash gift is given to the worker for exceptional work.
2. If necessary for the tasks, uniforms or work attire.
3. A worker’s usage of company computers
4. If the company requests the employee take a course related to their current position.
5. If an employee drives his vehicle to work, the employer pays for the petrol.
6. The employer-provided health services.
7. Employee help programs: Counseling or support services under an EAP are not taxable.
8. Tools or machinery required for the task.

4. Three Things to Consider for Taxable Benefits:

It would help if you considered the following before giving any taxable benefits to the employees:

1. The employer handles understanding the worth of the tax benefits before granting them. Then, he has to figure out the payroll deductions and perks.
2. He must submit an information return, if necessary.
3. The employee must accept any gifts the employer gives him or his other family members. However, the employee should also pay the taxes on it. So, the employer should know their tax obligations before providing the benefit.

5. How to Calculate the Value of Taxable Benefits?

As we have explained, what benefits are taxable and what is not. Now we will discuss how to calculate the exact amount to deduct from the employee’s pay for tax benefits.

The Fair Market Value technique is the most recommended for calculating tax benefits. The fair market value is the most expensive on the open market. The employer and employees decide it together. If the company had not provided this benefit and the employee had to pay for it himself, the cost he would have incurred would equal the value. Some benefits include GST/HST also. To determine the total amount of the employee’s income subject to payroll deductions, the employer first determines the value of the taxable benefits and then adds it to the employee’s pay.

6. How to Calculate The Payroll Deductions?

As the employer, you must determine whether the CPP or EI should be withheld from the employee’s pay. If you need help to deduct these allowances, you can reference the Benefits chart. So, you must remove the tax benefits after including the value of the taxable gifts in the employee’s income.

Note:

The deduction depends on the benefits, whether cash or non-cash.

The Bottom Line:

Taxable employee perks may be challenging to comprehend and keep track of. It’s not impossible, though. We hope this advice from Yogi & Associates has helped you know the rules for taxable benefits. This will ensure you your money is going to the right places.

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