If your employer gives you certain cash or non-cash benefits, you typically have to report them as income and pay applicable taxes. If you receive any benefits, it’s important to know how the Canada Revenue Agency values them, and what the agency expects from you and your employer in terms of reporting these benefits.
Cash and Non-Cash Benefits
If your employer reimburses you for expenses in cash, gives you an allowance for travel or gives you other types of cash benefits, these amounts are considered to be income by the CRA.
As a result, you must pay any applicable income taxes, Employment Insurance premiums and Canada Pension Plan contributions.
Additionally, if your employer gives you non-cash benefits such as the free use of property, or services such as a parking spot or season tickets to the theatre, these benefits are also considered as income.
Valuing Intangible Benefits
To evaluate non-cash benefits, the CRA uses the fair market value (FMV) of the item or service, rather than the amount your employer paid for it.
For example, if your boss gives you a parking spot as a benefit of your job, he typically needs to report the amount he pays for the parking spot as income that he paid to you. However, if his cousin owns the parking garage and he receives a discount on the spot, he must figure out the FMV of the spot and report that amount as your income.
The FMV of an item or service is the amount that someone at arm’s length from another person would generally pay.
Reporting Benefits as Income
Your employer is responsible for reporting the value of any cash or non-cash benefits to the CRA as income on your behalf. Similar to your regular income, your employer is required to withdraw Canada Pension Plan contributions, Employment Insurance premiums, and payroll taxes out of your benefit income. Additionally, your employer is required to remit these payments to the CRA. Finally, he is required to report them to you on your T4 slip at the end of the tax year.
If your employer fails to report benefits as income or does not issue you a T4, you should still report the income and attach a note to your return. The note should include your employer’s name and address, the type of income not reported and a list of efforts you made to obtain a correct T4 slip.
Exceptions to the Rule
Cash and near-cash benefits, such as gift cards, are always considered taxable income. This is the case even if they are given as a holiday present or a special bonus.
However, non-cash benefits are exempt from this rule if they can be considered a gift or an award. A gift must be for a special occasion, such as your birthday or a holiday, and an award must be for an employment-related accomplishment.