Through the Act, the Department of Finance provides some exceptions to the taxation of fringe benefits. For example, to promote the privatization of health care and retirement pension plans certain benefits may still be enjoyed tax-free. The exceptions are, as noted, provided for a paragraph 6(1)(a) of the Act:
- Employer contributions to a registered pension plan or a deferred profit-sharing plan;
- Employer contributions to a group sickness or accident insurance plan, private health plan or a supplementary unemployment benefit plan;
- Counseling services related to mental or physical health, employment termination or retirement; and
- Benefits under a retirement compensation arrangement, an employee benefit plan, employee trust, or salary deferral arrangement already included in income by virtue of another provision of the Act.
Specific taxable benefits include the following:
- The value of board and lodging regularly furnished as an employment perk (hotel, domestic, and farm employees)’ excluding free or low-rent board and lodging in a remote employment-related location or at a special work site.
- Personal travel benefits, including expenses of family travel.
- Personal use of employer’s automobile.
- Gifts: Effective January 1, 2001, employers will be able to give employees two non-cash gifts per year on a tax-free basis for special occasions, such as Christmas. Hanukkah, birthday, marriage, or similar events, provided the total cost of the gifts to the employee does not exceed $500 per year. If the gifts exceed $500 each, the full amount of the gift or award will become taxable. Note here, as well, that the cost of the award would include any applicable taxes (GST, HST, and/or PST). The employer will now be able to deduct the cost of the gift or award as a business expense. This position does not apply to cash or near-cash gifts and awards. As such, gift certificates, gold nuggets, or any other item that can easily be converted to cash, would not fall within the exception, and the value of such items would be considered a taxable benefit.
- Holiday trips, incentive prizes, and other awards used by the taxpayer or taxpayer’s family are taxable. Effective January 1, 2001, employers will be able to give employees two non-cash award per year on a tax-free basis in recognition of employment achievements, such as reaching a set number of years of service, meeting or exceeding safety standards, or reaching similar milestones where the total cost of the awards to the employer does not exceed $500 per year. If awards exceed $500 each, the full amount of the gift or award will become taxable. Note here, as well, that the cost of the award would include any applicable taxes (GST, HST, and/or PST). The employer will now be able to deduct the cost of the gift or award as a business expense.
Note: The suggested categories for which tax-free awards may be given appear to be quite different from sales incentive awards and prizes that are tied to sales quotas or performance levels. The tax-free awards suggested here relate to years of service milestones and safety achievements that benefit the workplace. Employers should take care to ensure that the purpose of the award meets similar categories and is not simply a sales incentive award.
- Frequent flyer program benefits earned through business travel. The fair market value of business travel points exercised for the personal benefit of the employee or employee’s family must be included in income.
- Tuition fees/education costs (where the training is primarily for the benefit of the employee and not the employer) paid or reimbursed on behalf of an employee are taxable benefits. The taxpayer must report the tuition fees as a taxable benefit to receive the non-refundable tax credit for tuition.
- Reimbursement of the cost of tools used for employment.
- Financial counseling and income tax return preparation, excluding financial counseling for job replacement or retirement.
- Employee premiums paid by an employer to a public provincial hospitalization plan or a public medical insurance plan.
- Airline transportation passes to airline employees who are paying less than 50% of economy fare on a space-confirmed basis.
- Discounts on employee merchandise (except where the price is less than the employer’s cost);
- Subsidized meals provided at a reasonable price (a reasonable price is one that covers the cost of the food, preparation, and service);
- Distinctive uniforms and special clothing supplied by the employer to be worn while carrying out duties of employment;
- Subsidized school services in remote areas;
- Transportation to the job in a remote location where public and private vehicles are not welcome or practical;
- The use of employer recreational facilities or recreational dues incurred with the intent of providing benefit to the employer (note that recreational facilities and club dues, regardless of the intent of the employer are not deductible by the corporation;
- Reimbursement of reasonable relocation expenses;
- Premiums under private health services plans (medical and dental) or premiums required by law to be paid to provincial medical care insurance;
- Transportation passes for bus, air, and rail employees (standby fling only);
- Amounts paid to public office holders for the reimbursement of costs incurred by reason of employment; and
- Reasonable business trip expenses.