Employee Benefits: Determining what is taxable, and what is not

Ron Clarke has his MBA and owns a business in Trail

Is your T4 showing more income than you know you were paid?

People are aware of their net pay deposited each pay day and of course we know the T4 indicates total, or gross earnings. But what makes up this gross amount?

In all likelihood there is more in that amount than your wages. This is due to taxable benefits your employer is providing you. But not all employer provided benefits are taxable.

Group insurance and extended health premiums paid by your employer on your behalf are considered income and included in your gross earnings. If you co-pay some of these premiums, a box on your T4 will indicate this amount and when input during tax prep, this amount contributes toward your medical expense deduction if you meet the necessary threshold amount.

The types of group insurances that are considered a taxable benefit include personal life, dependant life, accident and critical illness. Short or long term disability insurance premiums are not a taxable benefit if paid by the employer.

However, when an employer pays disability insurance premiums for you, if there ever is a payout of disability benefits to you, this benefit is considered taxable income. Since the benefit payout amount is designed to reflect your typical net take home pay, having the benefit taxed may create a financial burden. To avoid this risk, it may be better for you to pay your own disability insurance premiums. Then any disability benefit payout is not considered taxable income and the full benefit ends up in your hands.

Sometimes employers and employees agree to non-group insurance coverage. The premium for these individual plans if paid by an employer, is a taxable benefit just as with group insurance plans. However, unlike a group plan, if disability insurance is included in an individual plan it is a taxable benefit.

The contribution to a registered pension plan by your employer on your behalf is not a taxable benefit. At the same time, there is a pension adjustment input on your tax return that lowers the calculated RRSP contribution room.

In the case when an employer offers a matching program with direct deposits into your personal RRSP investment portfolio, the employer’s contribution is considered a taxable benefit to you. However, there is no effect on the calculation of RRSP contribution room.

Tuition reimbursement from your employer is not a taxable benefit, and neither is a bursary or scholarship given to you or a dependant of yours.

A company provided cell phone is not a taxable benefit other than overage charges for any personal use such as long distance. Likewise, equipment purchased by your employer so that you can work at home is not a taxable benefit. On the flip side, a parking pass paid by the employer is a taxable benefit.

Finally, non-cash awards and gifts to employees are non taxable benefits if the value is less than $500 but as a word of caution, this category of employee benefits is extensive in rules and regulations.

Taxable benefits can add up considerably and this additional “income” reported on your T4 does affect your tax outcome, albeit behind the scene.

Ron Clarke has his MBA and is a business owner in Trail, providing accounting and tax services. Email him at ron.clarke@JBSbiz.ca. To read previous Tax Tips & Pits columns visit www.JBSbiz.net.

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