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For Employers: Giving Benefits to Employeesin Tax Advice Information and Updates
You have given an employee a benefit if you as an employer pay for or give something that is personal in nature directly to your employee or to a person who does not deal at arm’s length with the employee (such as the employee’s spouse, child or sibling).
What is a benefit? A benefit is a good or service you give or arrange for a third party to give, to your employee such as free use of property you own. It also includes an allowance or a reimbursement of an employee’s personal expense.
An allowance is a limited amount decided in advance that you pay to your employee on top of salary or wages, to help the employee pay for certain anticipated expenses without having him or her support the expenses.
A reimbursement is an amount you pay to your employee to repay actual expenses he or she incurred while carrying out the duties of employment.
As an employer, you have the responsibility to:
- Determine if the benefit is taxable – whether or not the benefit is taxable depends on its type and the reason an employee or officer receives it.
- Calculate the value of the benefit – once you determine that the benefit is taxable, you need to calculate the value of the specific benefit which is generally its fair market value.
- Calculate payroll deductions – after you calculate the value of the benefit including any taxes that may apply, add this to the employee’s income for each pay period or when the benefit is receive or enjoyed. This gives you the total amount of income from which you have to make payroll deductions.
- File an information return – as an employer, you must report the value of the taxable benefit or allowance on a T4 slip.
Remember, if you need further assistance in performing your tax obligations as an employer, let KD know! Contact us today!
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