The holidays recently passed and one of the most common errors I see around this time of year are taxable benefits not being properly recorded for payroll. At first, it may seem like an innocent mistake. But — the ripple effect can be devastating for a business if audited down the road. This article will outline common taxable benefits, the meaning behind fair market value, why they need to be recorded properly for payroll and how investing in payroll services can be a godsend.

Did you give your employees a Christmas gift around the holidays? If so, this article is worth the two-minute read.

One of the most common mistakes I see on payroll at this time of year are Christmas gifts not being recorded as a taxable benefit. A taxable benefit can be as simple as a $10 gift card to Tim Hortons and needs to be documented correctly.

By definition — A taxable benefit is any benefit an employee receives that has monetary value and is deemed a “positive benefit”. This benefit must be reported when the employee files their personal income taxes.

Common taxable benefits include:

• Tips
• Life insurance premiums
• Boarding, lodging and low-rent or rent-free housing
• Travel expenses for personal travel
• Personal use of a company car
• Gifts over $500 per year
• Use of a company-owned vacation property
• Prizes and awards
• Costs of employer-paid courses for personal interest not related to work

It is then the employers responsibility to properly record this on the employee's payroll and determine if EI and CPP are applied to the taxable benefit at hand. Which is determined by whether the benefit is considered “cash” or “non-cash”:

Cash Benefit:

• CPP — Yes
• EI — Yes

Near Cash:

• CPP — Yes
• EI — No

Now that the employer has determined the benefit is taxable and whether or not CPP and EI also need to be deducted. The employer then needs to assess the Fair Market Value (FMV) of the benefit. Which is the true cost of the benefit to use the appropriate value. Supporting documentation may be required.

But why is there so much importance placed on a taxable benefit being recorded properly?

It determines the correct amount deducted for the employees’ payroll which then dictates the amount deducted for CPP, EI and the total income earned by the employee at tax time.

Investing in Payroll Services can be a godsend as it stops a mistake before they turn into a larger problem. Skilled professionals are able to calculate the appropriate payroll deductions and file payroll information returns for your business with ease. Not to mention, it then frees up time for you and your employees to focus on areas that will help maintain and grow your company.

Hiring a Professional

Filing payroll has a vast number of intricacies which is why professionals attend post-secondary schooling. Businesses who do not have this type of skill set within their company can greatly benefit when outsourcing their Payroll Services to a professional. Payroll professionals are up-to-date with the government’s everchanging taxable and non-taxable benefit rules and can also assist in putting more money in both the company and employee’s pockets. Learn more on hiring a Payroll Professional here.

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