Taxable benefits are so important to the payroll cycle that CRA has written a separate payroll guide to explain them. Every payroll clerk should have this guide at hand to determine income reporting and statutory deduction withholding requirements on an ongoing basis.
In all cases, where a taxable benefit arises the value of the benefit to be included in income is reduced by any payment the employee makes to the employer with respect to the benefit.
There are four basic facts about taxable benefits to remember in processing a payroll:
1. Add their Value to Gross Pay. The taxable benefit must be added to the employee's cash compensation each pay period and normal statutory deductions must be withheld from the total amount. Remember that the value of the taxable benefit is reduced by any payment the employee made to compensate the employer for providing the benefit.
2. Annualized Tax Withholding is Possible. Where a non-cash benefit is very large so that withholding of income tax will cause undue hardship, the value of the benefit and the related withholdings can be spread over the remainder of the year.
3. CPP Deductions Required. If the benefit or allowance is taxable, it will also be pensionable. Therefore Canada Pension Plan (CPP) contributions will be required to withheld, as will income tax.
4. EI Deductions May Be Required. If the taxable benefit is paid in cash and relates to insurable employment, it is insurable. Employment Insurance (EI) premiums will therefore be required. However, if the employment is not insurable under the Employment Insurance Act, taxable benefits paid in cash are not insurable and are not subject to EI premiums. Finally, if the taxable benefit is a non-cash benefit, it is not insurable. In that case, the benefit does not attract EI premiums.
The T4130 Guide available in EverGreen contains a chart which clearly identifies, in alphabetical order, the various types of taxable benefits and their source remittance. This table is also reproduced electronically on the CRA web site.