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Taxable Benefit

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Definition:

A taxable benefit is a benefit provided to an employee by an employer that has to be added to the employee’s income each period to determine the total amount that is subject to source deductions.

A benefit is defined as paying for or providing an employee something personal in nature. It may be in the form of a reimbursement, an allowance, or free use of property, goods or services that you own.

Some of the most common taxable benefits in Canada include group term life insurance policies, automobile benefits and meal allowances, but a benefit may also be something such as a low interest loan made to an employee or a transit pass.

Taxable benefits and allowances may be subject to Canada Pension Plan (CPP) contributions, Employment Insurance (EI) premiums and income tax deductions. So as a Canadian employer, if you provide a taxable benefit to an employee, you have to calculate the value of the benefit, calculate the proper payroll deductions for the taxable benefit and file an information return.

Generally, the value of a taxable benefit is considered to be its Fair Market Value, the price that the goods or service would fetch in an open market. You will also have to include an amount for the GST/HST and PST in the value of the taxable benefit, if applicable.

The Canada Revenue Agency's T4130: Employers' Guide - Taxable Benefits and Allowances provides details on this as well as information on which benefits are taxable, calculating payroll deductions and filing information returns.

You may find this Benefits Chart particularly useful; it shows which taxable benefits are subject to Canada Pension Plan (CPP) and Employment Insurance (EI) withholdings as well as which codes you need to use to report them on employees' T4 slips.

Common Misspellings: Taxible benefits, taxable benefits, taxable benefets, taxibul benefits.
Examples:
Cellular phone service is a taxable benefit which Canadian employers report under Code 40 on employees' T4 slips.

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