Section 5 – Employees
Reasonable automobile allowances are not taxable. An allowance is considered reasonable if it is computed solely based on the number of kilometres driven in connection with business. The allowance will be considered reasonable even if certain expenses10 are reimbursed to the employee if these expenses were not taken into account in determining the allowance.
The tax authorities tend to consider that the allowance is reasonable if the rate is not more than $0.55/km for the first 5,000 kilometres and $0.49/km for any additional kilometres.11 The allowance must take into account the actual kilometres driven to ensure it is not taxable. It is therefore essential to keep a record of the distance travelled by the employee to ensure that benefits are not taxable.
If the employee considers that the allowance is not reasonable because it is insufficient to cover the travelling costs, the employee can include the allowance in income and deduct the actual eligible amount of the expenses.
A combined automobile allowance is composed of a fixed amount and an amount based on a reasonable per kilometre rate. If an employer pays a combined allowance to employees, the total allowance is taxable if both parts of the allowance are paid with respect to the same general use of the vehicle. The employee can then deduct eligible automobile expenses.
10 For example, additional business insurance, parking, highway tolls or ferry costs.
11 2018 rates.
For federal purposes, an automobile allowance or a reimbursement of expenses is not taxable if the expenses are incurred to go to a registered charity’s board of directors’ meeting.
In Quebec, a taxpayer who is a representative of a corporation, an association or an organization is not required to include in income an amount received as a travel allowance or reimbursement of travelling expenses to attend board or committee meetings provided:
- The amount is reasonable;
- The taxpayer deals at arm’s length with the organization; and
- The meetings are held in a location that is at least 80 kilometres from his/her residence:
- The location is related to the territory where the not-for-profit organization carries on its activities;
- In any other case, the location is in the local municipality or metropolitan area where the organization’s place of business is located.
An expense allowance paid to an elected officer is not taxable to the extent it is not more than one-third (half in Quebec) of the salary and allowances received in connection with his/her duties. However, as of 2019, the allowance will be taxable for federal purposes if is non-accountable.
For federal purposes, if an employer pays or reimburses an employee’s professional dues because membership in the association is of benefit to the employer, the amount is not a taxable benefit for the employee. However, fees paid or reimbursed to join a professional order are a taxable benefit to the employee.
In Quebec, dues paid to associations governed by the Office des professions du Québec, a recognized artistic association as well as to the Association professionnelle des chauffeurs de taxi du Québec are a taxable benefit for the employees (see table in point 4 of this section).
Remember to claim the Quebec tax credit for professional dues included in your income as a taxable benefit.
There is no taxable benefit to the employee if the principal beneficiary of the training is the employer. Training includes:
- Courses (including associated costs such as books, meals, travel, etc.) leading to a diploma, licence or certificate12 that will serve to maintain or upgrade the employer-related skills to the extent it is expected that the employee will return to his/her employment for a reasonable period of time after completion of the course;
- Business related training, even though not necessarily dealing directly with the employer’s business, e.g. stress management.
However, costs paid by the employer for courses taken primarily for the employee’s benefit are a taxable benefit for the employee, but expenses paid for an employee’s family member to continue their studies may benefit from a generous tax treatment (see Section III).
12 In Quebec, the training does not have to lead to obtaining a diploma or a licence.
A parking space provided to an employee free of charge, or for an amount that is less than its FMV, constitutes a taxable benefit equal to the FMV of the parking space, including commodity taxes, less any amount paid by the employee. The benefit is not taxable when it is impossible to determine the FMV thereof (e.g. parking space in a shopping centre available to the general public or a parking lot where the number of spaces is less than the number of users and the spaces are used on a first-come basis).
When an employee is required to use an automobile regularly in the course of employment (three or more days a week), the value of the parking space is not a taxable benefit. If the employee uses his/her automobile on an irregular basis, the benefit may be reduced to take into account the number of days the employee has to use his/her automobile compared to the number of days the parking space is provided to him/her.
Allowances paid or meals provided to employees for overtime worked will not constitute a taxable benefit to the extent that:
- Overtime of at least two hours is expected to be worked at the request of the employer;
- Overtime is only put in on an occasional basis;
- The allowance is reasonable.13
The same tax treatment applies to allowances paid to employees for travelling from work to home to work overtime if the aforementioned conditions are satisfied and public transportation is not available or if, under the circumstances, the individual’s safety may be in danger because of the time at which he/she has to travel. Quebec’s administrative policy requires the employer to reimburse expenses rather than pay an allowance for this measure to apply.
13 In general, the CRA considers an amount up to $17 per meal reasonable.
Dinners or other activities for all employees are not taxable benefits to the employees provided they do not cost more than $150 per person, excluding related costs (transportation, temporary lodging, etc.).
Volunteers providing emergency services (volunteer firefighters,14 ambulance technicians and other emergency service volunteers who are called upon to assist in emergencies) are entitled to a $1,000 ($1,150 in Quebec15) tax exemption for allowances received. Amounts paid in excess of this limit are taxable.
14 Individuals who claim the tax credit for volunteer firefighters or for search and rescue volunteers (see point 9 of this section) cannot benefit from this exemption with regards to the amounts received in connection with this function.
15 2018 amount. Indexed annually in Quebec.
Employers16 may give their employees tax-free gifts and awards to mark special occasions or in recognition of certain exceptional accomplishments provided their total combined value does not exceed $500. In Quebec, there is a separate $500 limit for gifts and for rewards, which means an employer can give, on a tax-free basis, a total value of $1,000 per year to each employee. This exemption does not apply to rewards granted in exchange for work (e.g., for meeting a specific sales or performance objective).
For federal purposes, in addition to gifts and rewards, a non-cash gift of a maximum of $500 may also be given to an employee tax-free once every five years as a reward for years of service or for a birthday.
The following table summarizes the different rules:
16 An employee is generally considered to have received a taxable employment benefit if the employee receives a gift or award directly from a supplier or client of his/her employer. The $500 exemption does not apply to such an amount.
17 In Quebec, gift certificates, gift cards or chip cards used to purchase goods or services at one or more identified stores are not considered as gifts and rewards easily convertible into cash, unlike credit cards.
The cost of public transit passes paid or reimbursed by an employer (see Section VI) for an employee to travel to work is not a taxable benefit for the employee. The use of an intercity public transit service provided by the employer also does not give rise to a taxable benefit for the employee.
- In some circumstances, reimbursement of moving expenses, including reasonable expenses related to the relocation of services, connection of appliances as well as the modifications required to install moved property. An allowance paid for incidental relocation expenses does not constitute a taxable benefit provided it is not greater than the equivalent of two weeks of the employee’s salary (for Quebec purposes) or not more than $650 (federal);
- Reimbursement of a loss from the disposal of an employee’s residence subsequent to a move at the employer’s request, up to a maximum of $15,000 (see point 4 of this section);
Employer’s contributions to an RPP, a supplementary employment benefit plan or a DPSP;
- Discounts granted to all employees;
- Use of the employer’s recreational facilities, subject to certain conditions;
- Subsidized meals provided the employee is required to pay a reasonable amount for the cost of food. The ARQ accepts the following formula for calculating the benefit for hotel and restaurant employees: 80% of the lesser of the minimum cost of a meal (including all taxes) or $8.52 (in 2018) less any amount paid by the employee;
- Distinctive uniforms, special clothing and safety equipment required for work;
- Transportation to the work location, where such transportation is provided by the employer for safety reasons;
- Meals, lodging and transportation when an employee is performing duties at a remote location or, in some circumstances, at a special work site;
- Certain transportation passes to employees or retired employees of bus, subway, rail or air companies, except for active airline employees for whom the benefit is taxable if they are travelling on a space-confirmed basis. Free or reduced-price passes given to employees’ family members or retired employees are a taxable benefit to the employee;
- Counselling services relating to mental or physical health, re-employment or retirement of an employee;
- Allowances paid to a part-time employee for travel expenses provided the employee deals at arm’s length with the employer, holds another job or carries on a business, that the amount is reasonable and that this part-time function is performed at a location at least 80 kilometres from his/her normal place of residence and principal place of employment;
- Travel expenses incurred by an employee’s spouse where his/her presence is required by the employer and he/she has a role to play in achieving the business objectives of the trip;
- Expenses paid to an attendant to assist a disabled employee perform duties of employment, within certain limitations;
- Transportation and parking expenses paid by the employer to a blind or motor-impaired employee, including an allowance for the use of a taxi or adapted public transportation;
- Reasonable allowances for travel costs other than the use of an automobile (e.g. food, beverages or lodging) paid to an employee whose work does not involve selling goods or negotiating contracts to cover travel costs outside the municipality or metropolitan area where the establishment where the employee works is located. Such allowances paid for travelling inside the municipality or metropolitan area are not taxable if they are paid primarily for the benefit of the employer;
- Reasonable allowances for travel costs paid to an employee whose work involves selling goods or negotiating contracts;
- Membership dues to a sports club paid by the employer, provided it is principally for the employer’s own advantage (outside the sole fact that an employer can, to a certain extent, benefit from having healthier employees);
- Internet services, computer devices, and cellular telephones made available to employees, to the extent that they use it in carrying out their work or where such use mainly benefits the employer. For federal purposes, a taxable benefit must be calculated according to the percentage of personal use of the Internet. In Quebec, a taxable benefit must be added to the employee’s income if personal use of the Internet or telephone results in additional fees for the employer or if the employer pays the employee an allowance;
- For federal purposes, reimbursement of child care expenses by an employer if the employee is required to work out of town at the request of the employer;
- Points accumulated by an employee in connection with loyalty programs are non-taxable provided the points are not converted into cash and the employer does not control them. Accordingly, for example, points accumulated through the use of a company’s credit card are taxable.
Consider asking your employer to provide you with non-taxable benefits instead of a salary raise.
This document has been updated on August 31st, 2018 and reflects the state of the Law, including draft amendments, at that date.