What are the Most Common Taxable Benefits for Employees?

If you have a job and are concerned about paying too much in taxes then this article is for you.  In this article, we will review the two most common taxable benefits that are provided by employers to employees.

Taxable Benefit #1 – Company Car

One of the most common taxable benefits for employees stems from a company-owned or a company leased car.  The tax term for this benefit is the standby charge.  The standby charge is an imputed benefit to you, the employee merely because you have access to a company car.  The amount of the standby charge is included on your T4 slip.  For example, assume that your employer-provided you with a new vehicle which has a retail value of $30,000 and let’s assume that you drove 20,000 KM in the course of the entire year and you used the car 60% for work or business purposes.  In this case, the standby charge would equate to $2,879 as determined by using the CRA’s online calculator.  This standby charge would be reported on your T1 tax return, T4 slip and you would have to pay tax on this amount.

How to Reduce the Standby Charge?

There are two methods of reducing this charge.  The first way is to ask your employer to provide you with a less expensive vehicle.  The higher the cost of the vehicle, the higher the cost of your standby charge.  The second option is to reduce the number of personal kilometers that you drive with the company car, the higher the personal usage, the higher the standby charge.

The second taxable benefit from having a company owned/leased car is called the ‘operating cost-benefit’.  The operating cost-benefit must be included in your income as an employee less any reimbursements that you made to your employer.  This benefited is computed by multiplying your personal use kilometers by 27 cents per kilometer.  For example, if you drove 10,000 KM in the year that is non-work related than the operating cost benefit would be $2,700.  For more information on the tax implications of using a vehicle for work, please read this article on is it better to lease or buy a car for a business in Canada.

Taxable Benefit #2 – Free Home Internet Access and Use to a Company Cell Phone

The amount of this taxable benefit is equal to the portion of the cell phone and internet bills that are related to personal use.  For example, if your combined internet and cell phone bill is $200 and you spend 80% of the time talking for personal use and browsing online then the taxable benefit will be $160 per month.  In the digital age where everyone almost has a cell phone, the government does provide some tax relief.  In a situation where an employee cell phone usage results in additional charges because they went over their monthly fix limit, then there will not be an additional taxable benefit for the employee.  So make sure you do not exceed the minutes provided in your plan.

So Here’s the Tip:
Before accepting a car, cell phone or free internet.  Consider the taxable benefits that will be included on your tax return.

While not as common, another employee benefit that a provider may provide is stock options.  To learn more about stock options, please read this article on the taxation of stock options for employees in Canada.

For a fully comprehensive list of taxable benefits and allowances, make sure to have a look at the Canada Revenue Agency Website.

ABOUT THE AUTHOR

ALLAN MADAN

CPA, CA

Allan Madan is a CPA, CA and the founder of Madan Chartered Accountant Professional Corporation. Allan provides valuable tax planning, accounting and income tax preparation services in the Greater Toronto Area.

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