Taxable Benefits 2006

A taxable benefit is generally any benefit provided to an employee by virtue of their employment. The following lists some of the more common taxable benefits. Click on the link for additional information about each type of benefit:

• Interest free or low interest loans
• Home purchase loan
• Home relocation loan
• Moving expenses
• Gifts and incentive awards
• Parking
• Tuition fees
• Registered retirement savings plans (“RRSPs”)
• Holiday trips, other prizes and awards
• Professional membership dues
• Automobile standby charge and operating cost benefit if you supply your employees with automobiles
• Automobile allowances
• Insurance premiums paid by the company

• Prescribed interest rates
• Taxable benefits at a glance
• Automobile allowance summary

GST/HST and QST Consequences

Don’t forget that taxable benefits have GST/HST and QST consequences that must be reported with the GST/HST and QST return that includes the month of February. For more information, click on the following links:

• GST/HST remittance
• QST remittance

Expense reimbursements

Expense reimbursements are payments made by an employer to an employee as repayment for costs incurred while conducting the employer’s business. These are not taxable benefits to the employee. Click on the link for additional information concerning GST/HST and QST related issues for expense reimbursements.

Interest free or low interest loans

Rules of application

• Where interest free or low interest loans are made available to employees or shareholders

• Outstanding loan x prescribed interest rate = taxable benefit
• Reduce by any amount paid by the employee
• No GST/HST or QST applicable
• Prescribed interest rates, click here to view the table.

Home Purchase Loan

Rules of application

• A loan for the employee to acquire a dwelling
• Loan obtained by virtue of employment
• If the term of repayment for the home purchase loan is more than five years, the balance owing at the end of five years is considered a new loan for the purposes of computing the benefit.

• Outstanding loan x prescribed interest rate = taxable benefit
• The prescribed interest rate cannot exceed the interest rate at the time the loan originated
• Prescribed interest rates, click here to view the table.

Example - 2006 Benefit Amount
Home purchase loan of $100,000 advanced to employee on July 1, 2005 when the prescribed interest rate was 3%. No interest is charged by the employer. Repayments of $10,000 are due on July 1^st of each year.

Computation of benefit for 2006 :

$100,000 x 3% x 90/365 = $ 740
$100,000 x 3% x 91/365 = $ 748
$ 90,000 x 3% x 92/365 = $ 681
$ 90,000 x 3% x 92/365 = $ 680

Total benefit $ 2,849 (Federal and Quebec)

Home Relocation Loan

Rules of application

• All of the following criteria must be met:
• Employee moves from a residence in Canada to start new work within Canada
• Loan used to buy new home that is at least 40 km closer to the new work location
• Employee or employee’s spouse/common-law partner receives the loan by virtue of the employee’s employment
• Loan is designated to be a home relocation loan
• If the term of repayment for the home relocation loan is more than five years, the balance owing at the end of five years is considered a new loan for the purposes of computing the benefit
• A deduction is allowed to be claimed by the individual in the first five years of the loan

• Outstanding loan x prescribed interest rate = taxable benefit
• The prescribed interest rate cannot exceed the interest rate at the time the loan originated
• Deduction available in the first five years of the loan, equal to the lesser of:
  
• Taxable benefit; and
• Interest calculated on a loan of $25,000

Moving Expenses

Rules of application

• A relocation is considered an eligible relocation if:
• a person relocates for employment purposes; and
• the distance between the new work location and the new residence is at least 40 km closer than from the new work location to the old residence.
• When an employer makes a payment in respect of moving expenses incurred for an eligible relocation:
• if the payment is considered a reimbursement of specific expenses, it is not a taxable benefit;
• if the payment is made with no requirement to account for expenses, it is treated as a taxable benefit.
• Types of expenses which can be reimbursed by an employer without giving rise to a taxable benefit are:
• cost of house-hunting trips;
• travel costs while moving;
• reasonable temporary living expenses (up to 15 days);
• transporting or storing personal effects;
• charges and fees to disconnect and reconnect services (e.g. utilities, telephone, etc.);
• fees to cancel a lease;
• costs of selling a home (including advertising, notarial or legal fees, real estate commissions and mortgage discharge penalties).
• Costs that are not allowable moving expenses will be treated as taxable benefit even if specific reimbursement has occurred.

Computation of benefit

Allowance:

Federal, Ontario and Alberta (administrative position)

• If the allowance is < $650 it is considered a reimbursement of specific expenses as long as the employee certifies in writing that total moving expenses incurred were at least equal to $650.
• If the allowance is > $650 the amount in excess of $650 (if certification obtained) is considered a taxable benefit.

• employee certifies in writing that moving costs were at least $650
• $100 = taxable benefit

• Taxable benefit = portion of the allowance that exceeds an amount equivalent to the employee’s salary or wages for 2 weeks.

• An employee can claim deductions for allowable moving expenses where the employer does not reimburse moving costs
• If a partial reimbursement received, a deduction only on the amount in excess of the reimbursement

• Benefit includes applicable GST/HST and QST.

Gifts and Incentive Awards

Rules of application

• All gifts and awards are taxable, unless the gift is a “non-cash” gift:
• For federal, Ontario and Albera tax purposes, administratively, it is:
• Not taxable if:
• an employer gives a maximum of 2 gifts and 2 incentive awards per year to an employee; and
• the cost of the 2 gifts does not exceed $500 and the cost of the 2 incentive awards does not exceed $500
• For Quebec tax purposes, the first $500 is not taxable
• Social Events are not taxable if:
• provided to all employees, and
• the cost does not exceed $100 per person
• If the cost exceeds $100 per person, then the entire amount is a taxable benefit.

• Benefit = FMV of gift or incentive award

Parking

Rules of application

• Employer provided parking is generally a taxable benefit
• Exceptions:
• employer provides parking to employees for business purposes and employees regularly have to use automobiles to perform their employment duties;
• FMV cannot be determined (i.e. parking is available to both employees and non-employees or employer provides scramble parking (first come, first served basis))

Computation of benefit

• Benefit = FMV of parking
• GST/HST and QST applies on this taxable benefit

• Tuition fees paid to attend courses at the request of the employer are not a taxable benefit (must be primarily for employer’s benefit).
• Specific employment-related training (not a taxable benefit).
• General employment-related training (not a taxable benefit).
• Personal interest training (taxable benefit).

• Benefit = Tuition fee paid by employer
• No GST/HST or QST implications if it relates to exempt tuition fees
• GST/HST and QST applies on the taxable benefit if it relates to taxable tuition fees

• Contributions made by the employer to fund the employee’s RRSP are taxable benefits
Computation of benefit
• Benefit = Amount of employer’s contribution
• GST/HST and QST not applicable

• A holiday trip or other non-incentive type award given to an employee is considered a taxable benefit
• Holiday trips and other prizes may not be considered a taxable benefit if given as a gift or incentive award (see Gifts and Incentives Award section)

• Benefit = FMV of the trip, vacation or award
• If cash payment is given, no GST/HST or QST implications.
• If payment in kind and it is a taxable supply, GST/HST and QST applies on that part of the prize or award

• For federal, Ontario and Alberta tax purposes:
• If the employer pays or reimburses professional membership dues as a condition of employment, there is no taxable benefit to the employee
• If the employee is the primary beneficiary, then there is a taxable benefit
• For Quebec tax purposes:
• All payments or reimbursements of professional membership dues are considered a taxable benefit
• Employee may claim tax credit on personal income tax return

• Benefit = Amount paid by employer
• Benefit amount includes GST/HST and QST if applicable

• These rules apply where an employer makes an automobile “available” to an employee (employee has access or control over use of the vehicle)
• Vehicles not included under these rules are:
• taxis, buses, hearses, clearly marked emergency medical response vehicle, vans, pick-up trucks that:
• have a seating capacity of not more than the driver and two passengers and are acquired primarily (50%) to transport goods, or
• are used 90% or more of the time to transport goods, equipment or passengers
• An employee receives a benefit to the extent that the automobile is used for personal driving
• Personal driving includes:
• vacation trips, driving for personal use, travel between home and wor, by the employee or person related to employee
• It does not include travel between home to a point of call other than the regular place of business of the employer or the return home from that point.
• For Quebec resident employees:
• As of 2005 taxation year, when an automobile is made available to an employee, the employee must remit a logbook to the employer.
• The logbook must be remitted no later than the 10th day following:
• the end of the year, or
• the end of the period during which the automobile was made available to the employee, if that period ends before the end of the year.
• Any employee who fails to remit the logbook by the applicable deadline is subject to a penalty of $200.

I. Standby charge (click here for table)

• Represents the benefit employees enjoy when an employer’s automobile is available for their personal use
• Reduced by reimbursements paid by employee to employer in the year or within 45 days after the end of the year for the use of the automobile (other than operating expenses)

II. Operating cost (click here for table)

• Represents the benefit received of automobile operating expenses relating to the personal use of a company owned/leased automobile
• Operating costs include:
• gasoline and oil
• licenses
• insurance
• repairs and maintenance
• Expenses do not include: Interest, Parking, capital cost allowance, lease costs
• Two methods available to calculate the benefit:
• “simplified” method; or
• one-half of the standby charge (restrictions apply)

• it is based solely on business kilometres driven in a year;
• the rate per kilometre is reasonable;
• relates to business activities in Canada, and
• employee must not be entitled to other forms of reimbursements by employer for automobile related expenses which are covered by the allowance.

• $0.50 per km on the first 5,000 kms

• $0.44 per km thereafter

• Benefit = Amount of allowance
• No GST/HST, or QST benefit
• Employee may claim automobile expenses and GST and QST rebates (where employer is a registrant) on personal income tax return (Form T2200)

• Applicable to employees that are insured at any time in the year under a group life insurance policy.
• The premiums must relate to life insurance and be paid by the employer.
Computation of benefit
• Benefit = Total amount of group life insurance premiums (including sales taxes) paid by the employer
• Reduced by any employee reimbursements
• The taxable benefit for group term life insurance premiums is not subject to E.I. premiums, however is subject to QPP.

• Private health insurance premiums paid by an employer are taxable benefits only for Quebec purposes.
• Insurance for medical, hospital, dental and eye care.

• Benefit = (A x B)/C + (D x E)/F

A = Total benefits and tax paid for all employees for a specific coverage
B = # of days during which particular employee had this specific coverage
C = # of employee - days of coverage - specific coverage
D = Admin charges, operating costs including related taxes
E = # of days during which the employee had coverage
F = # of employee - days of coverage

• Reduced by any employee reimbursements
• Includes sales tax on premiums

• Industry plans (e.g. union, joint committee, etc.)
• Separate plan administrator
• Employer produces Relevé 1
• Plan administrator produces Relevé 22
• Reconciliation by employee
• Relevé 1 - put data re benefit in boxes A and P and as a memo entry.

• To view the table on prescribed interet rates, click here.

• To view the taxable allowance or benefit table, click here.

Automobile allowance summary

• To view the automobile allowance summary, click here.

• Certain taxable benefits are subject to GST/HST
• An employer who makes a taxable service or property available to an employee is treated as having made a supply and is considered to have collected GST/HST
• These rules do not apply to:
• cash remuneration
• taxable benefit of an exempt or zero-rated supply
• taxable benefit of a non-registrant employer
• QST is generally harmonized with GST but there are some exceptions
• QST is applicable to businesses that have a permanent establishment in Quebec

• The GST or HST is deemed collected on the last day of February of the following year.
• Remittable with return that includes the month of February.
• Remittance is not required if:
• Employer is not a registrant.
• Registrant employer was not entitled to claim an ITC for the property as it was acquired exclusively (>90%) for non commercial activities.
• Individual or partnership is employer and automobile was not used exclusively (³90%) in commercial activities.
• Employer (other than individual, partnership or financial institution) acquired an automobile which was not used primarily (>50%) in commercial activities.

• For automobile operating benefit, the prescribed amounts are:
• For GST 4.5% (applicable for 2006; rate reduces to 4% as of 2007)
• For HST10.5% (applicable for 2006; rate reduces to10% as of 2007)
• For all other benefits, the prescribed amounts are:
• For GST 5.5/105.5 (applicable for 2006; rate reduces to 5/105 as of 2007)
• For HST13.5/113.5 (applicable for 2006; rate reduces to 13/113 as of 2007)
• The changes in rates reflect the reduction in GST and HST effective July 1, 2006

• Generally harmonized with GST
• Small and medium-sized businesses are required to remit the QST benefit
• Large businesses are not required to remit the QST benefit on restricted expenses (i.e. automobiles), but are required to remit on non restricted expenses (i.e. taxable tuition benefit).
• Definition of Small and Medium-sized Businesses (SMB):
• Annual revenues in Canada (including exports) on an associated basis do not exceed $10 million in the immediate preceding fiscal year.
• Definition of Large Businesses:
• One that is not a small and medium-size business.
• All banks, trust companies, credit unions, insurers and investment plans.

• Prescribed amount is 5.7% for automobile operating benefit
• In all other cases, prescribed amount is 7.5/107.5 

• Employers can claim GST/HST paid on expense reimbursements.
• The actual amount of GST/HST paid can be claimed; or
• To facilitate the process, an administrative factor may be used:
• For GST 5/105 (6/106 prior to July 1, 2006)
• For HST 13/113 (14/114 prior to July 1, 2006)
• The administrative factor applies only to expense reimbursements
• Expenses must be incurred in Canada.
• Can be used by category of expenses; however must be used consistently for all employees.
• 50% limit still applies on meal and entertainment expenses. 

•  Employers can claim QST paid on expense reimbursements.
• The actual amount of QST paid can be claimed; or
• To facilitate the process, an administrative factor may be used:
• For Large businesses 4.1% only on expenses incurred in Quebec
• For Small and Medium-sized Businesses 7/107 only on expenses incurred in Quebec
• If administrative factor is used, it must be used for all expense reimbursements.