What is T4 Box 40?
Box 40 is a section on your T4 slip where your employer lists out your other taxable allowances and benefits besides your wages or salary. Not everyone will have a Box 40 amount on their T4 slip. However, if you do have an amount for Box 40, that same amount is also included in Box 14, the box for total employment income.
What Might Be Included in My Box 40?
Box 40 does not include your wages or salary. It also does not include other typical amounts included on a T4 slip such as CPP/QPP contributions or EI premiums. Instead, Box 40 includes expenses your employer pays for that are considered benefits or allowances. This may include a company cell phone, car, parking, food allowances, travel assistance, board and lodging, and more. While these things are not included in your salary or your wages, they are still taxable benefits that the CRA needs to know about and which you may be taxed on.
What is an “Other Taxable Benefit”?
You may wonder if your employer included the correct benefits and allowances in Box 40. The amount included here must be a benefit or allowance that is taxable. Whether or not a benefit or allowance is taxable depends on whether it gives you an economic advantage that can be measured in money.
For example, if your employer paid for your lunch, this is a taxable benefit. Your employer can determine the cost of the lunch. Further, you get the economic benefit of not having to buy your own lunch. The benefit does not have to be paid in cash in order for it to be taxable, although it may be.
Further, a benefit or allowance is not taxable if you did not take advantage of it. So, if your employer provides you a voucher for a hotel lodging, but you do not use it, then it should not be included in Box 40.
Other common taxable benefit allowances that you may find in Box 40 include relocation loans, rent-free housing, long-service awards, counselling and much more. The Canada Revenue Agency (CRA) has an exhaustive list of taxable benefits and allowances. It covers everything from air miles points to union dues.
From the employer perspective, how the benefit and allowance is paid and what it is for matters when determining if a benefit is taxable. Other benefits may be exempt; these include exempt supply and zero-rated supply benefits. You can find the definition of these benefits in the Excise Tax Act.
As the employer, you need to report the travel expenses in the year you gave the benefit, even if the employee will not take the trip until later. For example, you pay for an employee’s trip to a prescribed zone to see their ailing grandmother. You give the money in December 2020, but your employee does not take the trip until January of 2021. In this case, you report the benefit in the 2020 tax year.
What if My T4 has an Error in Box 40?
If you suspect that there is any kind of error on your T4 your first step should be to contact your employer to have the mistake corrected. It’s useful to keep in mind that the CRA typically expects that the value of the benefit is fair market value (FMV). It also requires employers to be able to support the value of the benefit.
Further, employees frequently do not realize that the employer is supposed to include the GST or HST they paid on the benefit. If they have a PST exemption due to the type of business they are or the service they perform, they may still have to include that PST amount (even though they didn’t pay it).
Do I Report My Box 40 Amount on My Tax Return?
You do not add Box 40 to anything on your tax return, as it is already broken out when you input your T4 details.
Why Did My Employer Include a Box 40 On My T4 Slip?
Employers are required to list your taxable benefits separately from your gross income (salary and wages). This separation allows you to determine the value of your benefits and salary. You can subtract Box 40 from Box 14 to determine the amount that you were paid in the relevant tax year without the additional taxable benefits. As the employee, this distinction is usually just for your own knowledge.