CRA guidelines on whether or not two office perks are taxable worker advantages

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Jamie Golombek: Workers might find yourself paying tax on varied non-cash employment advantages

Publishing date:

Jun 02, 2022 • 5 hours in the past • 4 minute learn • 15 Feedback

Swabs awaiting COVID-19 testing at an Ontario hospital. Photograph by Luke Hendry/The Intelligencer/Postmedia Community

Workers are taxable on their salaries, bonuses and another sort of direct compensation they could obtain, however they may additionally find yourself paying tax on varied non-cash employment advantages or perquisites.

Beneath the Earnings Tax Act, staff should embrace of their earnings the worth of any advantages of any sort acquired by the worker “in respect of, in the middle of, or by advantage of his or her employment.” In figuring out whether or not an worker should embrace the worth of a profit acquired, the Canada Income Company appears to be like at three figuring out elements: Does the profit give the worker an financial benefit? Is the profit measurable and quantifiable? And does it primarily profit the worker or the employer?

Two latest CRA technical interpretation letters, every launched up to now month, mentioned whether or not sure employer-provided advantages could be thought-about taxable. The primary involved employer-provided COVID-19 testing, and the second was employer-provided identification theft safety providers. Let’s check out what the CRA stated about each.

COVID-19 testing

The taxpayer, presumably an employer, wrote to the CRA asking about employer-paid COVID-19 testing, particularly a polymerase chain response check the place staff mail within the pattern to a laboratory for evaluation. The outcomes take a number of days to course of and are available again. The testing is totally funded by the employer, participation by staff is voluntary, and an unfavourable check outcome (that’s, a optimistic COVID-19 check outcome) would stop the worker from coming into the employer’s premises. Notably, the worker would nonetheless be capable of preserve their employment standing via an alternate work association if a optimistic check outcome have been to happen.

The CRA responded that it was the company’s “long-standing view” that an employer is taken into account to be the first beneficiary of medical testing in conditions the place such testing is critical to fulfil a situation of employment. Within the scenario described within the letter, nevertheless, staff aren’t required to take a COVID-19 check and the check outcomes (whether or not optimistic or damaging) haven’t any impression on an worker’s employment standing. Consequently, voluntary COVID-19 testing doesn’t create an employment situation.

That stated, within the context of the pandemic, “appreciable effort is being made to manage the unfold of the virus,” with governments encouraging employers to make testing obtainable to staff. Consequently, the CRA concluded that the place the outcomes of employer-provided COVID-19 testing are primarily for using an employer, it’s “each unlikely and unintended that an worker could be enriched or thought-about to have acquired an financial benefit,” and so the CRA doesn’t view employer-provided COVID-19 testing as a taxable profit to staff. (Phew.)

Id theft defend premiums

The second technical interpretation letter was written by an employer asking whether or not identification theft defend premiums it presumably would pay to a 3rd occasion on behalf of its staff could be thought-about a taxable profit to staff, and whether or not these premiums could be thought-about a tax-deductible enterprise expense for the employer.

Id theft safety providers usually present identification or credit score monitoring providers to find out if a person’s private data has been compromised. In accordance with the small print of the plan, the issuer of the coverage supplies privateness and safety monitoring, identification session providers and identification restoration providers. Particularly, the service screens for matches of a person’s personally identifiable data: identify, date of delivery, social insurance coverage quantity, driver’s licence quantity, as much as 5 passport numbers, and as much as 10 of every of the next: checking account numbers, worldwide checking account numbers, credit score/debit card numbers, medical identification numbers, e-mail addresses and telephone numbers.

The CRA, after reviewing the small print of the plan and providers on supply, and within the absence of extra data suggesting a heightened danger of identification theft for the corporate’s staff or some sort of hyperlink between the non-public data monitored and the employer’s enterprise, decided that the employer-paid plan would seem to offer an financial benefit primarily for the advantage of the workers. Consequently, the CRA concluded that employer-paid premiums would, certainly, be included within the worker’s earnings as a taxable employment profit.

The CRA then turned to the query as as to if the premiums paid could be tax deductible to the employer as a enterprise expense. Usually, with a purpose to qualify as a tax-deductible enterprise expense, it should be incurred for the aim of incomes enterprise earnings, should be neither a capital expenditure nor a private expense, and should be cheap within the circumstances.

Based mostly on the small print of the identification theft safety plan described above, the CRA felt that the providers relate to defending a person’s private and monetary data, and weren’t associated to both the worker’s employment or enterprise data. That stated, the CRA concluded that to the extent the employer-paid premiums are included within the staff’ earnings as a taxable profit, the premiums would even be tax deductible for enterprise functions supplied they’re additionally thought-about cheap. This conclusion is in step with most employer-paid perquisites, that are usually tax deductible to the employer.

Jamie Golombek, CPA, CA, CFP, CLU, TEP, is the managing director, Tax & Property Planning with CIBC Non-public Wealth in Toronto. [email protected]

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