Taxable benefits

A taxable benefit is a good or service that an employer provides to an employee for personal use: a company car, parking, or group insurance. Even if no cash is paid, its value is added to taxable income and appears on year-end statements, the federal T4, and Quebec’s RL-1.

At a glance

Added to the employee’s taxable income, even when no money is paid out
Examples: company car, paid parking, insurance premiums paid by the employer
In Quebec, certain benefits are taxable only at the provincial level (such as employer-paid health insurance)
Employers often have to add GST (federal tax) and QST (Quebec tax) to these amounts.
Personal use of a company car is calculated, in particular, based on usage fees of approximately 2% of the vehicle’s cost per month

Why it matters

A company car, a cell phone, insurance paid for by the business: these little perks all have value in the eyes of the tax authorities. Take a business owner who drives a vehicle paid for by his company and also uses it on the weekends: that personal use becomes a taxable benefit that he must report. In practical terms, providing a car results in a usage fee of about 2% of the vehicle’s cost per month: for a $40,000 car available year-round, this adds about $9,600 to taxable income, even before operating costs. Forgetting this can be costly when preparing T4 slips and RL-1 forms. In Quebec, things get more complicated: certain benefits, such as health insurance premiums paid by the employer, are taxable at the provincial level but not at the federal level. The choice between paying yourself a salary (with its benefits) or dividends (T5 form) changes everything, and a forgotten benefit quickly becomes apparent when tax audit or a cross-check of T4A form. The calculation rules are detailed in the guide Canada Revenue Agency Form T4130. If you’re both the owner and an employee of your company, review your benefits every fall, before the February rush. Bankeo will connect you, at no cost to you, with a vetted accountant or CPA who specializes in Quebec payroll.

Frequently asked questions

What exactly is a taxable benefit?

These are all the benefits your business provides for your personal convenience rather than for work-related purposes: a car you also use on weekends, a parking space, insurance, or a large gift. The tax authorities consider this to be disguised wages: the value is added to your income, and you pay taxes on it, even if you’ve never actually received that money in cash.

Is group insurance a taxable benefit?

It depends on the plan. Premiums paid by the employer for a private health insurance plan are not taxable at the federal level, but they are taxable in Quebec and reported on RL-1 (the Quebec pay stub). Life insurance premiums paid by the employer, on the other hand, are taxable at both levels. This is why it’s important to have a properly configured payroll system.

How can you avoid unpleasant surprises with taxable benefits?

Make a list of everything the business pays for you or your employees: vehicle, cell phone, insurance, gifts, parking. Each item has its own rules, and sometimes you need to add GST and QST. Bankeo connects you for free with a vetted accountant or CPA who specializes in Quebec payroll, at no cost to you, and we’re here to support you every step of the way.