Canada: Employee Benefits: Taxable, Or Not?

When it comes to payroll, employees usually trust their employer to correctly calculate and deduct source deductions, such as income tax and Employment Insurance (EI) and Canada Pension Plan (CPP) contributions, and to remit those deductions to the government on time. Sometimes employers make mistakes, such as neglecting to include the value of a taxable benefit when calculating source deductions.

The Canada Revenue Agency (CRA) expects employers to accurately report the value of taxable employment benefits for tax purposes. To do so, employers must first consider whether a fringe benefit is taxable, and, if so, determine its value and report it properly to taxing authorities. This is a significant requirement for an employer, as the misreporting of taxable benefits can affect not only its own liability for penalties and interest, but also its relationship with employees. An employer that fails to properly determine and report the value of taxable benefits may be faced with an employee relations nightmare if its employees receive unexpected tax bills as a result of the employer's error.

Misreported Taxable Benefits

The CRA performs Employer Compliance Audits of employer payroll records to ensure that employee remuneration, including taxable benefits, has been reported properly, and that related income tax, EI premiums and CPP contributions have also been accounted for and remitted. In the past, if CRA determined that remuneration had been understated by an employer, it might give the employer the option of adding the understated amount to its corporate income for tax purposes, i.e., allow the employer to reverse the expense deduction, and pay additional corporate income tax. However, CRA no longer offers this option to correct understated remuneration. CRA's view is that such arrangements do not protect employees' CPP and EI entitlements. CRA now requires that amended T4 information slips be issued to affected employees, which will trigger reassessments of their individual income tax returns for the years subject to audit by CRA.

Preventing the Problem

There are some things employers can do to avoid or reduce the ire of reassessed employees and the possibility of an assessment for penalties and interest on the unremitted tax. The first step is to perform a comprehensive review of all the benefits provided to employees, from formal employee benefit plans to one-off gifts or events, to determine whether any taxable benefits or allowances have been conferred but not reported, or underreported, for tax purposes.

The Income Tax Act (Canada) exempts some benefits from tax, such as private health insurance. Other benefits may not be considered taxable to the employee if they are provided primarily for the employer's benefit. This "primary beneficiary" principle was established by the Federal Court of Appeal in the 1996 case of Lowe v. R. In Lowe, the Court had to decide if an insurance executive received a taxable benefit when he and his wife were sent by his employer on an all-expense-paid trip to New Orleans with a group of top-selling brokers and their spouses. The Court found that the executive was required to attend the trip to ensure the brokers enjoyed themselves and that his wife was primarily engaged in hosting events for the employer throughout the trip. The Court held that the employer was the primary beneficiary of the trip. Therefore, no taxable benefit was conferred on the executive as a result of the employer paying his and his wife's travel expenses.

Many employers provide employees with small benefits from time to time, such as gifts and holiday parties. How does an employer know what benefits are taxable and how much to report in respect of non-cash benefits? The CRA publishes a number of guides and bulletins on its website which outline its policies on the benefits it considers taxable and how employers should determine the value of non-cash benefits for tax purposes (in some cases, including HST). CRA exempts certain benefits, such as non-cash gifts valued $500 or less per year or social events costing $100 or less per person, but considers others such as gift cards and mileage allowances beyond a certain prescribed rate to be taxable.

In some situations, the tax status of a benefit may not be clear. Employer-provided parking is one example. The CRA's general policy is that an employee receives a taxable benefit equal to the fair market value of the parking spot. An exception may apply if the employee regularly needs to use a car to perform employment duties as the parking would be considered to be provided for the employer's benefit.

Where a benefit enables employees to perform their job duties, employers should also ensure that they keep adequate documentation of the business purpose for providing the benefit, such as, for example, policies or memoranda setting out the employer's reasons for providing the benefit, the eligibility requirements and a method to determine personal use, such as mileage or usage logs.

Employer Responses to CRA Audits

Employers who are the subject of a CRA employer compliance audit may be assessed penalties and interest for amounts not withheld on unreported remuneration. In addition, provincial taxing authorities may also assess payroll taxes, such as Ontario Employer Health Tax, on the unreported amounts based on information received from the CRA under information exchange agreements.

Once employee reassessments are issued, employers should be aware of the reputational risks of doing nothing to maintain good relationships with employees. Employers may want to consider adopting a "make whole" philosophy by, for example, offering to pay the employees' tax liabilities plus an additional "gross-up" to reflect the fact that the employer's payment is itself a taxable benefit.

Reducing the Risk

To protect themselves and their employees from potential reassessments by CRA, employers can review the benefits they provide to their employees, seeking professional help where necessary, to ensure that they have correctly determined, valued, reported and documented all benefits and allowances paid to employees.

If your company's management dislikes unpleasant surprises, you may wish to consider undertaking a taxable benefits review in the near future.

The authors wish to thank Kerry Thomas of Ryan ULC for his assistance in developing this bulletin.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.