If you are an employer who provides benefits or allowances to your employees, you know the importance of calculating taxable benefits accurately for payroll and T4 reporting purposes. In 2020, in response to COVID-19, the Canada Revenue Agency (CRA) provided administrative guidance on how to calculate specific employer-provided benefits and allowances, including commuting costs, parking, and home office equipment. These changes were recently extended to 31 Dec 2021.
The CRA states that up to $500 of reimbursements for computer or home office equipment, to enable an employee to work from home, would not be considered a taxable benefit to the employee. Note that employees are required to submit receipts to their employer. It’s also important to be aware that this $500 maximum amount per employee is available for eligible purchases made between 15 March 2020 and 31 Dec 2021, it’s not a $500 limit per year. It may be challenging for payroll to track this cumulative limit over two years, so plan to require additional time to meet the T4 reporting deadline. Additionally, if you reimburse more than $500 for computer or home office equipment, the amount in excess of $500 must be included in your employee’s income. Revenu Québec (RQ) has indicated on its COVID-19: FAQ for Employers webpage that it would apply the same approach with respect to such reimbursements.
The CRA has also clarified that this position is available to accountable advances provided to an employee but does not apply to allowances. The CRA considers an amount to be an accountable advance when an employee has to provide receipts for their expenses and return any unused amount to their employer. In contrast, if you provide an allowance for computer or home office equipment, the full amount of the allowance would be a taxable benefit to your employees.
Employees may have incurred additional commuting costs to minimize the risk of exposure during the pandemic. In light of this, the CRA has indicated that they will not consider the amounts to be a taxable benefit when an employer pays for, reimburses, or provides a reasonable allowance for:
(1) additional commuting costs incurred by an employee that are over and above their normal commuting costs where the employee continues to work from their regular place of employment, or
(2) commuting costs incurred by an employee to travel to their regular place of employment for any purpose, such as to retrieve equipment or supplies, that enables them to perform their duties from home.
This position is extended to the use of an employer-provided vehicle for commuting if the employee did not normally commute to work using such a vehicle before the pandemic.
Keep in mind that as an employer, you are required to maintain adequate records to support the reasonableness of any allowances you provide to your employees.
An employer-provided parking spot would not be considered a taxable benefit when the regular place of employment is closed due to COVID-19. The CRA has stated that this would include situations where employees were sent home by their employer. RQ has also confirmed that for the employee working from home after 12 March 2020, due to the pandemic, parking provided by the employer would not be a taxable benefit because the employee cannot get to their regular workplace. However, RQ has indicated that this would not apply when an employee is on vacation or sick leave or working from home voluntarily.
Employers are required to report a standby charge benefit for employees who have been provided an automobile that may be used for personal use. However, a reduced standby charge is available when the automobile is driven primarily (i.e., over 50%) for business purposes and kilometres for personal use are less than 20,004 kilometres a year. In response to changes brought about by the pandemic, the government is allowing employees to use their 2019 automobile usage to determine whether they qualify for the reduced standby charge in both 2020 and 2021. This is only available to your employees if you were their employer and provided them with an automobile in 2019.
This change also applies to the option of calculating the operating expense benefit as 50% of the standby charge instead of using the per-kilometre prescribed rate. This option is available if the automobile is used primarily (i.e., over 50%) for employment purposes, for 2020 and 2021 the test can be based on the employee’s 2019 usage. Remember that unlike in normal years—when your employee is required to notify you that they want to use the optional method— for both 2020 and 2021, you should calculate your employee’s operating expense benefit as the lesser of the benefit calculated under either method.
RQ has confirmed that these same temporary rules for 2020 and 2021, related to the calculation of an automobile benefit applicable under the federal rules, would also apply for Quebec purposes.
The CRA has confirmed that their existing policies apply to the cost of meals and cell phone and/or internet service plans. Meals you provide to your employees, who were working at their regular place of employment during regular hours of work, continue to be a taxable benefit. However, under CRA’s existing policies, there are certain circumstances where an employer provides overtime meals or allowances, or a subsidized meal and the employee would not receive a taxable benefit.
When you pay for or reimburse the cost to your employee’s cell phone service plan or home internet service plan, CRA’s policy states that the portion used for employment purposes is not a taxable benefit. However, if part of the use of the cell phone or internet service is personal, then the personal use would generally be a taxable benefit to your employee.