Tax time is nearly here. If you’re an employee, Thursday was the deadline for you to have received your T4 slip showing the amount of your taxable employment earnings and benefits that should be reported on your tax return for 2018. My friend Jackson called me this week in a panic when he received his T4 slip. “Tim, I can’t believe the taxable amounts added to my income this year. I’m going to owe a lot of tax – this is crazy,” he said.
“Jackson, the art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing,” I replied, quoting 17th century French statesman Jean-Baptiste Colbert.
“Yeah, well, I’m hissing here,” he said. It turns out that Jackson’s employer had made gifts of slow-moving inventory to the staff worth about $2,000 each. The employees were thrilled at the time, but now realize they have to pay tax on most of the value. Are there any benefits that an employer can give an employee on a tax-free basis? Sure. Here are the top 10 non-taxable benefits.
1. Costs of education. If your employer pays for training or education that is generally related to your employment, that training is considered to be primarily for your employer’s benefit, and you won’t generally face tax on the value of that benefit. Where the education or training is considered to be for your own personal interest, and not primarily related to your job, the benefit will be taxable.
2. Gifts and awards. Your employer is allowed to give employees an unlimited number of non-cash gifts and awards on a tax-free basis as long as the total value is $500 or less annually ($1,000 or less in Quebec). If the total is over this limit in a given year, your employer is supposed to report that excess benefit on a T4 slip – which was Jackson’s problem. Sorry, but cash or near-cash gifts or awards (gift cards are an example) are taxable.
3. Parking costs. If you’re required to use your car regularly (three or more days each week) for work, your employer can provide a parking space and it’s not a taxable benefit. Or, if you’re provided a parking space in a lot where the spots are also available to the general public (a shopping mall, for example) or where the number of spaces is less than the number of drivers and spaces are used on a first-come basis, then the parking benefit is tax-free.
4. Recreational club dues. Fees paid by your employer for social and athletic clubs are generally tax-free provided the membership is principally deemed to be for your employer’s advantage, not yours.
5. Personal counselling. If your employer pays for the cost of counselling related to the physical or mental health of you or a family member, the benefit is generally tax-free. This also includes financial counselling related to your re-employment or retirement if you require it.
6. Mobile phones and internet. If your employer provides a phone, the cost of the phone is a tax-free benefit. If you provide your own phone and your employer reimburses you for the purchase cost, that amount is taxable. As for service plans, those costs paid by your employer are tax-free to the extent the devices are used in your work.
7. Loyalty program points. If you collect points or air miles on your personal credit card for business travel or expenses that your employer reimburses, the value of those points will be tax-free provided the points aren’t converted to cash and the points don’t seem to be a form of remuneration (a judgment call by the CRA based on the dollar level of points).
8. Transportation passes. If you’re an employee of, or retired from, a bus, subway, airline or rail company, transportation passes are tax-free (unless you’re an active employee and travel on a space-confirmed – not stand-by – basis). Sorry, but reduced-price passes for family members are a taxable benefit.
9. Reimbursed losses. If your employer requires you to move and you otherwise qualify to claim moving expenses (a move at least 40 kilometres closer to your new work location), your employer can reimburse you for “eligible housing losses” if you have to sell your home at a loss when making the move. The first $15,000 of this benefit will be tax-free and one half of the reimbursement over this amount will be taxable.
10. Employee loans. If your employer lends you money for any reason and you pay an interest cost that is equal to, or higher than, the prescribed rate of interest under the tax law of 2 per cent (revised quarterly) then you won’t face a taxable benefit.
Approach your employer to negotiate some of these benefits if you can. After all, these amount to tax-free compensation.
Tim Cestnick, FCPA, FCA, CPA(IL), CFP, TEP, is an author, and co-founder and CEO of Our Family Office Inc. He can be reached at firstname.lastname@example.org.