This is a great time of year, just before tax season, to take a look at the benefits you provide to your employees in order to ensure that you and they are in compliance with all the necessary taxation provisions. That way if the taxman or woman comes calling both of you can avoid any possible reassessments or audits in the future.
Most employers offer a package of benefits to their employees in order to keep them happy and productive, and to keep them with your company or organization. These taxable benefits can range from contributions to pension and retirement accounts, health and dental packages to paying an employee’s professional or membership fees. Non-taxable benefits include all CPP, EI and provincial and federal income taxes.
Your employees may also be entitled to other non-taxable benefits for moving or relocation costs and health club or recreational club memberships, as long as it can be shown that the business is the prime beneficiary of these memberships. In addition, employees are allowed to receive small gifts up to the $500 limit to celebrate their birthdays or special holidays and a similar amount for five years of service with the company. Employers can also give staff another $100 each for social events, as long as all employees are entitled to this benefit.
It is important to note however that some employee benefits outside of the above are taxable, and these must be recorded and reported to the CRA at tax time. One area that seems to get special treatment is business entertainment expenses. Be careful that these expenses are used by employees for legitimate work-related expenses and not as another form of employee benefit. If your employees claim this type of benefit it might be useful to have a formal written policy so that they know what they can charge to this account and that the CRA can see that the policy is being followed.
One of the most popular and taxable benefits is the use of a company provided automobile. This benefit requires every employee to keep accurate and separate mileage records from when they use the vehicle for both business and personal needs. The way this benefit is calculated includes an annual standby charge and operating expenses. The taxable portion of this benefit can be mitigated and lessened if the employee repays some or all of the operating expenses 45 days after the new year has begun.
Smart employers have policies that cover the use and claiming of both taxable and non-taxable employee benefits. They also have proper documentation and recording procedures. That ensures that the benefits are not abused and provide a guide for the taxation agency if they want to monitor or review the use of employee benefits inside any organization.