Transcript

Host: Welcome to the segment called Introducing employee benefits, part of the Payroll Information for a New Small Business video.

This segment mentions webpages where you can get more information. You can find links to these webpages in the Related links for this video.

I'm Karen Davis, your host for this segment.

With me is John Kelly. Welcome John.

Subject matter expert: Thank you Karen.

Host: Tell me, what does it mean to give benefits to your employees?

Subject matter expert: You give a benefit to your employee if you provide or pay for something that is personal in nature. A benefit can include a reimbursement of personal expenses, free use of property, goods, or services that you own, or an allowance. The benefit can be paid in cash, such as a meal allowance or reimbursement of personal cell phone charges, or provided as a non-cash benefit, such as a parking space or a gift.

Host: What are the tax implications for providing a benefit?

Subject matter expert: If you provide taxable benefits in addition to salaries or wages, you will have to include their value in the employee's income. If you provide a benefit to your employee's spouse or child, the value of this benefit also has to be included in your employee's income, unless the benefit is related to the education of the spouse or the child. If you provide a benefit, there are four steps you must follow. If one step doesn't apply to you, skip it, and move on to the next.

Host: Okay, so, let's go through the steps. What's the first step?

Subject matter expert: Well, the first step is to determine if the benefit is taxable. We have to consider the type of benefit and why the employee is receiving it. There has to be a personal element for a benefit to be taxable.

Host: What's the second step?

Subject matter expert: If the benefit is taxable, the next step is to find out its value. The value of a benefit is generally its fair market value. This is the price that can be obtained in an open market between two individuals dealing at arm's length. You can use the amount you paid for the particular property, good, or service if it reflects the fair market value of the item or service.

Host: And what is involved with the third step?

Subject matter expert: You calculate the payroll deductions. Add the value of the benefit to the taxable income for the period the benefit was received or enjoyed by the employee. Then, calculate the deductions based on the total amount of benefits plus salary and wages. You have to withhold CPP and income tax from all taxable benefits, and you have to deduct EI from cash benefits. In certain cases, you have to include the GST/HST in the value of the taxable benefit.

Host: And finally, what is the last step?

Subject matter expert: You file an information return. When preparing your employee's T4 slip, add the value of the taxable benefit to the employee's income. You also have to report it under "Other information" using the code that corresponds to the benefit. For more information, watch the video series Preparing T4 and T4A Information Returns – Slips and Summaries.

Host: Okay, so Let's say that I'm an employer who lets an employee use the company automobile for purposes other than business. What then?

Subject matter expert: In this situation, the personal use of the vehicle is considered a taxable benefit for the employee. To calculate the estimated automobile benefit for employees, use the automobile benefits online calculator.

Host: And what's a good source for information for employee benefits?

Subject matter expert: For more information on employee benefits, go to the payroll webpage and click on "Benefits and allowances." More information is also available in Guide T4130, Employer's Guide – Taxable Benefits and Allowances.

Host: Thanks John.

This concludes the segment called Introducing employee benefits, part of the CRA's Payroll Information for a New Small Business video.

Thank you for watching.