Section 5 – Employees
While there are numerous rules surrounding insurance plans, generally, any premiums paid by the employer to a non-group insurance plan are considered a taxable benefit, whether it is a health insurance, accident insurance, disability insurance, life insurance or wage-loss insurance plan. Exceptions apply, however, when an employer pays premiums in respect of certain group plans.
In Quebec, employer contributions to group sickness, drug or dental plans are considered taxable employee benefits and can be claimed as medical expenses for purposes of the provincial tax credit for medical expenses (see Section IV).
The tax treatment of the benefits paid to an employee-beneficiary varies depending on whether all or a portion of the premiums were paid by the employer.
The employee benefit relating to the use of an automobile includes:
- A standby charge;
- A benefit for operating costs.
The use of the automobile by the employee to travel from home to the employer’s place of business is normally considered personal use under all tax rules, mainly those used to calculate taxable benefits.
Calculation of Benefits
1) Standby charge:1
- Employer-owned automobile:
- L’automobile est la propriété de l’employeur :
|Lease cost||X||2 %3||X||Number of days in a year automobile is available to employee/30 days|
- Employer-leased automobile:
||X||2/3||X||Number of days in a year automobile is available to employee/30 days|
- A standby charge benefit must be calculated, whether employees use an automobile for personal purposes or not. The fact that the vehicle is available for their use and at their discretion is sufficient. However, the benefit may be reduced if the employee uses the automobile more than 50% of the time for work-related purposes and if personal use is less than 1,667 kilometres per month:
|Standby charge previously calculated||X||Kilometers for personal use
1 667 km x Number of months automobile is available to the employee
Example: An employee drives 25,000 km for work-related purposes and 15,000 km for personal purposes. Because the personal-use portion is not more than 20,004 km (1,667 km × 12 months) per year and the automobile is used more than 50% of the time for work-related purposes, the reduced standby charge calculation applies. In this situation, the taxable benefit for the standby charge represents 75% (15,000/20,004) of the standby charge.
Given that the standby charge is calculated on the initial cost of an automobile, consider purchasing the automobile after a few years.
2) Operating costs benefit:5
- $0.266 × number of personal-use kilometres;
- Optional method if the following conditions are met:
- Automobile is used more than 50% of the time for office or employment purposes;
- Employee notifies employer before the year-end that this method will be used.
In this case, the benefit is equal to 50% of the standby charge benefit excluding any reimbursement by the employee.
Motor Vehicle Other Than an Automobile
For tax law purposes, an automobile is a motor vehicle for transporting individuals with a maximum seating capacity of nine persons. However, this definition is subject to several exceptions.7
The benefits related to the actual personal use (and not the availability) of motor vehicles excluded from the definition of an automobile are also taxable. The benefit is therefore equal to the FMV of the benefit therefrom, e.g. the amount the employee would normally pay to lease a similar vehicle in an arm’s length transaction, including operating costs. If the employee uses the vehicle solely to travel between home and place of work, the calculation can be based on a per kilometre amount for equivalent transportation.
The CRA requires that employers maintain adequate records so that it can verify an employee’s remuneration and so that the appropriate amounts can be deducted at source. Consequently, employers must make every effort to ensure that employees to whom an automobile is provided keep a record of the kilometres travelled.
In Quebec, an employee must provide the employer with a logbook containing the following information:
- The number of days in the year the automobile was made available to him/her;
- The number of kilometres driven every day for personal as well as for employment purposes.
Employees can record total kilometres driven on a weekly or monthly basis provided the number of kilometres driven in the course of their employment is recorded on a daily basis. In addition, each point of departure and arrival for business-related travel must be indicated.
The logbook must be given to the employer no later than January 10 of the following year if the automobile is available to the employee at the end of the year or within ten days following the end of the period during which the automobile was available to him/her. A penalty of $200 will be charged to employees who fail to comply with these requirements.
Raymond Chabot Grant Thornton has designed “L’Auto-route” to help you easily and efficiently compile the data required for the logbook.
You can download this Excel file at www.rcgt.com. This tool enables you to quickly enter your personal data, which are compiled automatically.
1 The benefit is reduced by all amounts repaid by the employee in the year.
2 Automobile cost includes commodity taxes.
3 For automobile salespersons, the employer may use a 1.5% rate if the following three conditions are met:
- The taxpayer is employed primarily in selling or leasing automobiles;
- An employer-owned automobile is made available to the taxpayer;
- The employer acquires at least one automobile in the year.
The cost of the automobile is the greater of:
- The average cost of all automobiles acquired by the employer for sale or rent in the year;
- The average cost of all new automobiles acquired by the employer for sale or rent during the year.
4 Lease cost includes commodity taxes and excludes insurance costs.
5 The benefit is reduced by any amount reimbursed by the employee no later than within 45 days of the end of the year; no benefit if all fees are reimbursed.
6 In 2018. $0.23 for individuals employed in selling or leasing automobiles.
7 Exclusions include primarily taxis and certain vans and minivans with three seats or less used to transport merchandise. For more details, consult the document on the tax consequences related to the use of an automobile, published on Raymond Chabot Grant Thornton’s website: https://www.rcgt.com/en/insights/.
Interest-free and Low-interest Loans
Taxable benefits are usually calculated when an employee receives an interest-free or low-interest loan or debt at a rate lower than the government prescribed rate. The rate, which is fixed quarterly, is set at 1% for the first quarter of 2018 and 2% for the next two quarters. The benefit is reduced by interest paid by the employee no later than 30 days following the end of the year. The creditor does not need to be the employer; the fact that the debt is contracted in connection with the employee’s office or employment is sufficient.
When the prescribed rates of interest on loans to employees are low, it is advantageous to get an interest-free loan from your employer. The cost of such a loan is only the tax on the deemed loan interest.
Loans to Purchase a Family Home
If the loan is made to enable the employee to purchase a family home, the amount of the benefit must be computed based on the lesser of the prescribed rate when the loan was made and the prescribed rate for the year. If the loan repayment period is greater than five years, the employee is deemed to have received a new loan at the prescribed rate for the period of the year starting five years after the date of the loan.
If possible, negotiate an interest-free home purchase loan when prescribed interest rates are low in order to reduce the taxable benefit on the loan for the next five years.
This document has been updated on August 31st, 2018 and reflects the state of the Law, including draft amendments, at that date.