Tax Tip:  Employee Benefits

An employee is generally taxable on the value of a benefit of any kind whatsoever realized by virtue of their employment. However, some benefits that primarily benefit the employer, as well as certain other select cases, may be considered non-taxable to the employee.

The following is a list of some recent CRA discussions on different employment benefits:

Employee housing at a location distant from the employee’s usual place of residence results in a taxable benefit unless the work is at a remote location (CRA generally accepts a location at least 80 kilometers away from the nearest community with a population of at least 1,000 people) or at a temporary work location, regardless of whether it is impractical or impossible for the employee to return to their regular place of residence between shifts.

  • Cell phone reimbursements for a reasonable basic plan required for employment purposes will not create a taxable benefit. However, any form of allowance would be taxable, so payments to employees must be made with regards to actual costs incurred in order to remain non-taxable. As well, any payment towards the cost of the cell phone itself would be taxable to the employee.

  • Health programs reimbursing costs of physical activity will generally result in a taxable benefit unless the nature of the job carries unusual fitness requirements. CRA may also consider the benefit non-taxable where the employer provides fitness facilities for all employees or owns a membership which permits all employees to use a fitness facility.

  • Uniforms are not a taxable benefit if they are either designed to protect the employee from on the job hazards (e.g. safety equipment) or are distinctive uniforms (e.g. clothing identifying the employer), but each component of the clothing must be considered separately. In one case reviewed, CRA indicated that specific footwear which did not meet either of the above criteria would result in a taxable benefit if paid for by the employer.

  • Income maintenance insurance benefits would be tax-free where all premiums were paid by the employee.

Note that the taxability of employee benefits can be a grey area. There may be anomalies and exceptions even within the above examples.

Action Item: Consider reviewing employment compensation packages to ensure the most tax-efficient structures with no tax surprises for employees.