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Multi-jurisdictional Income Tax in Canada

August 21, 2013

Tax Question:

What employee benefits are more advantageous for tax purposes than others?

Facts:

Many companies offer employee benefits to attract or motivate employees. The best employee benefits are those that are non-taxable to the employee and deductible for tax purposes to the company.

Discussion:

Below are some common examples of employee benefits and how they are treated for tax purposes:

  • Conventions: consider a convention that benefits the employer, the employee would not have a tax benefit unless they were given an employee allowance greater than the cost of expenses. The excess of the allowance over actual expenses would be a taxable benefit. The convention fees, hotel and travel would be tax-deductible to the company however any meals paid during the convention are subject to the standard 50% deductibility for tax purposes to the company.
  • Health Service Plan Premiums: If paid to a private health plan to cover medical, dental and or vision these are non-taxable to the employee and a tax deduction for the company. Provincial health premiums are taxable to the employee yet deductible to the company.
  • Low-interest loans: The employee receives a taxable benefit for the difference between Canada Revenue’s prescribed interest rate and the interest rate paid to the company. The company is taxed on the interest received from the employee as income to the company.
  • Awards and gifts: Any cash or near-cash (gift certificate) award or gift is a taxable benefit to the employee. You may grant non-cash awards and gifts to employees so long as the fair value of those is not more than $500 total; these non-cash gifts would not be a taxable benefit to the employee. Any excess in the fair value over the $500/year would be taxable to the employee. Small items such as coffee mugs, plaques or company logo t-shirts are also not considered taxable benefits to employees. In either of the above cases, there is a deduction available to the company.
  • Gym membership and other similar perks: Unless the membership or other gift/perk is directly related to the company’s business the value is generally a taxable benefit for the employee and the cost is not deductible to the company.
  • Golf fees: If an employee attends a golf tournament as a representative of the company and to specifically promote the business there is not a benefit to the employee however, the green fees, cart rental and any membership fees to the golf course are not deductible to the company for tax purposes.

If you would like more information on this topic, please contact a member of the Empire CPA team by filling out the contact form below.

Canadian and foreign tax laws are complex and have a tendency to change on a frequent basis. As such, the content published above is believed to be accurate as of the date of this post. Before implementing any tax planning, please seek professional advice from a qualified tax professional. Empire, Chartered Professional Accountants will not accept any liability for any tax ramifications that may result from acting based on the information contained above.

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