As we approach our April tax deadline each year I often get asked which workplace benefits are taxable and which are not.
If your T4 slip shows employment income (Box 14) higher than the wages you earned for the year, you received taxable benefits from your employer and you must pay the taxes on those amounts.
But how do you know what is taxed and what isn’t?
Here is how the Canada Revenue Agency (CRA) treats nine types of employee benefits for tax purposes:
1. Group health and dental premiums
Employer-paid premiums for group health insurance are NOT taxable benefits, an extremely valuable benefit worth thousands of dollars a year. The Liberal government last year discussed making this a taxable benefit but thankfully they did not!
2. Group life insurance premiums
Employer-paid premiums for group life insurance, dependent life insurance, accident insurance and critical illness insurance ARE taxable benefits and the amounts paid on your behalf need to be added to your taxable income.
3. Group short or long-term disability
If your employer deducts these premiums from your paycheck then it is NOT taxable. I always recommend to clients that their short-term disability (STD) or long-term disability (LTD) premiums be deducted from employees’ pay. If they are not, then any disability benefits you may collect in future will be taxable. In most cases, a few dollars paid today while earning a full income is a lot easier to handle than getting taxed on a reduced income during disability. Check how your disability premiums are being reported.
4. Pension & Group Registered Retirement Savings Plans
Your employer’s contributions to a registered pension plan on your behalf are NOT taxable. However, employer contributions to or matching group RRSP contributions ARE taxable. Your employer may deposit the full amount into your RRSP account without any withholding tax being deducted, as long as you have contribution room. Be aware: your employer’s contribution to your pension reduces your RRSP contribution room the following year, via the “pension adjustment” that is reported on your T4.
5. Non-group insurance plans
Any non-group insurance plans (i.e. for an individual employee or an executive) paid by your employer are a taxable benefit. Whether it is a sickness, accident insurance, disability insurance, or a health and wellness program with a private facility. These annual fees AREtaxable.
If your company provides employees with smartphones plus a voice and data plan, the CRA will generally NOT consider this a taxable benefit, as long as the cost of the cell phone plan is reasonable and you do not incur additional costs for personal use (e.g., additional long-distance charges) beyond the basic fee for the plan.
7. Equipment when working from home
Working at home whether it is full or part-time are now common in many industries. Computer equipment or other supplies provided by your employer to enable you to do your job are NOT taxable benefits. Note: If you must provide your own office space or equipment, you may be able to deduct all or part of these expenses for tax purposes, ask your accountant if and how you can claim those amounts at tax time.
8. Tuition reimbursement
Tuition paid for you as an employee is NOT a taxable benefit if you require the training to progress in your job. If your company gives your son or daughter a bursary or scholarship, neither you nor your child is required to pay taxes on these amounts.
9. Gifts and awards
If your employer gives non-cash gifts or awards worth <$500 for outstanding service or for milestones such as a wedding or the birth of a child, it is NOT a taxable benefit. Non-cash awards for long service worth < $500 are also not considered taxable benefits after working there for at least five years (you are not eligible for such an award more often than every five years). However, incentive and performance bonuses ARE included in your taxable income.
As always, it is a good idea to sit down and discuss any tax-related issues with your accountant. You can use this list to help you ask the right questions as you head into tax season.
Want a complimentary assessment of your insurance coverage and benefits? Contact me for a complimentary 30-minute consultation.
Aviva Abraham is a group benefits and insurance advisor at Creative Planning. She has been providing healthcare solutions for self-employed and business owners since 2010.