Ask an Accountant: Taxable benefits and allowances

Francesca Giroux, CPA
For the Lakeside Leader

As an employer it is important to know whether certain benefits and allowances paid to employees are subject to payroll deductions and GST so that the appropriate deductions are taken off the employee’s pay cheque and the correct remittances are made.
If you pay an employee a reimbursement for tools purchased or an allowance for tools that they need for their job, the amount paid to the employee is considered to be a taxable benefit and should be included in the employee’s income. This means that the amount should be reported on their T4 by including it in Box 14 Employment Income, and under Other Information Code 40 – Other taxable allowances and benefits. The amount paid is subject to tax, CPP, and EI and if the amount paid is a reimbursement for tools purchased, GST must be included in the calculation of the benefit.
An allowance for motor vehicles is a payment received by an employee for the use of their own vehicle for employment purposes without having to keep track of kilometers driven. This payment is considered to be in addition to the salary or wages received by the employee. This allowance is subject to tax, CPP and EI and is to be included on the employees T4 slip in Box 14 Employment Income, and under Other Information Code 40. Employees that receive a taxable allowance may be able to claim expenses against this amount by having their employer fill out form T2200 Declaration of Conditions of Employment, to certify that the employee was required to use their personal vehicle in the course of employment duties and was required to pay their own expenses (i.e. insurance, fuel, repairs and maintenance, etc.) The total expenses that can be claimed will be multiplied by the percentage of business km’s/total km’s to determine the allowable portion. If the allowance is based on a reasonable per-kilometer rate ($0.54 for the first 5000 kms and $0.48 for the balance of kms) the allowance is not considered to be taxable; however, employees must keep track of their business kms.
Please e-mail your questions to bonnie@nashgirouxllp.ca or visit our website at www.nashgirouxllp.ca.
Information provided is of a general nature. As each individual or company’s situation is unique, you may wish to consult with your CPA for information specific to your own needs.

 

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