T4 Taxable Benefits and HST on Benefits Calculator
A perk that costs the corporation a thousand dollars rarely costs a thousand dollars. Work out what belongs in box 14 and box 40, which benefits attract CPP but not EI, the HST the corporation has to self-remit, and the Ontario tax on insurance premiums.
taxable benefit per employee
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Benefit by Benefit
| Benefit | Employer Cost | Taxable Amount | Treatment |
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Payroll Consequences
| Item | Basis | Amount |
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Indirect Tax the Corporation Owes
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Points That Decide This
What to Do Next
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Disclaimer: Under paragraph 6(1)(a) of the Income Tax Act the value of board, lodging and other benefits received or enjoyed by an employee in respect of employment is included in income, subject to specific exceptions. Employer-paid premiums to a private health services plan are excluded from that inclusion and are generally not a taxable benefit, while employer-paid group term life insurance premiums are taxable. Non-cash gifts and awards are subject to an annual exemption threshold, taken here as $500, above which the excess is taxable; cash and near-cash gifts are taxable in full. A benefit from a low-interest or interest-free loan is computed under section 80.4 using the prescribed rate, which is set quarterly. Taxable benefits are generally pensionable for Canada Pension Plan purposes, while non-cash benefits are generally not insurable for Employment Insurance purposes, so CPP applies where EI does not. Where a taxable benefit is reported on a T4, the employer is generally required to account for GST/HST on the benefit using a prescribed factor, taken here as 13/113 for Ontario benefits other than automobile operating expense benefits, which use a different factor; supplies that are exempt, such as insurance, do not attract this. Ontario imposes retail sales tax at 8% on premiums for certain insurance and benefit plans. The CPP rate, prescribed rate, gift threshold and corporate tax rate used here should be confirmed against current Canada Revenue Agency and Ontario Ministry of Finance publications before filing, as all of them change. Whether a particular benefit is taxable turns on the facts and on who primarily benefits. This page is general information, not tax advice.
The Default Is Taxable
Paragraph 6(1)(a) sweeps in the value of benefits received in respect of employment, and then the exceptions carve pieces back out. That ordering matters: a perk is taxable unless something specific says otherwise, rather than tax-free unless something catches it.
Owner-managers get this backwards more often than anyone, because the corporation pays for something, the money never touches a personal bank account, and nothing feels like income. The T4 disagrees.
The test that resolves most cases is who primarily benefits. A benefit that mainly serves the employer’s needs is usually not taxable; one that mainly serves the employee is. Parking, memberships and training all turn on that question rather than on how the invoice is addressed.
What Is Taxable and What Is Not
| Benefit | Taxable | Notes |
|---|---|---|
| Private health and dental premiums | No | Excluded from the income inclusion |
| Group term life insurance premiums | Yes | Taxable in full, unlike health premiums |
| Parking for commuting | Yes | Unless a genuine business need for the vehicle |
| Cell phone, personal portion | Yes | Business use is not a benefit |
| Gym and club memberships | Yes | Where the employee is the main beneficiary |
| Non-cash gifts within the threshold | No | The excess above it is taxable |
| Cash and near-cash gifts | Yes | Taxable in full regardless of amount |
| Job-related training | No | Primarily for the employer’s benefit |
| Interest-free loans | Yes | Computed at the prescribed rate |
Health premiums and life premiums sit on opposite sides of the line. A corporation paying both often reports neither, on the assumption that insurance is insurance. The health premiums are correctly excluded; the life premiums should have been on the T4 all along, and that is one of the more common adjustments on a payroll review.
CPP Applies Where EI Does Not
This asymmetry is the part that catches payroll staff. Taxable benefits are generally pensionable, so CPP is owed on them by both the employee and the employer. Non-cash benefits are generally not insurable, so no EI arises.
The practical effect is that a benefit reported correctly in box 14 increases pensionable earnings without increasing insurable earnings, and a payroll system configured to treat benefits like ordinary wages will over-deduct EI while a system that ignores them entirely will under-deduct CPP.
The Corporation Owes HST on the Benefit
This is the piece most employers have never heard of. Where a taxable benefit is reported on a T4, the employer generally has to account for GST/HST on that benefit, calculated using a prescribed factor rather than by adding tax on top.
In Ontario the factor for most benefits is 13/113 of the benefit amount, which extracts the tax already embedded in it. The remittance goes on the HST return for the reporting period that includes the last day of February following the calendar year.
Exempt supplies do not attract it. Insurance premiums are exempt, so no HST self-assessment arises on group life or health premiums even though the life premium is a taxable benefit for income tax. The two systems draw their lines in different places, which is precisely why this gets missed.
Ontario Taxes the Premiums Separately Again
Alongside all of that, Ontario applies retail sales tax at eight per cent to premiums for certain insurance and benefit plans. It applies to the premium itself, so it lands whether or not the benefit is taxable to the employee.
A corporation paying health and life premiums therefore faces three separate questions on the same spending: whether it is a taxable benefit, whether HST must be self-assessed, and whether the eight per cent applies. The answers are not the same, and assuming they move together is how the third one gets forgotten.
Loans Create a Benefit Without Any Spending
An interest-free loan to an employee or shareholder produces a taxable benefit even though the corporation pays nothing. The benefit is the interest that would have accrued at the prescribed rate, less whatever was actually charged.
The prescribed rate is reset quarterly, so the calculation is not a single figure for the year, and a loan left outstanding across a period of rising rates produces a larger benefit than the owner expects. Shareholder loans carry separate and more serious consequences under the shareholder benefit rules, which sit on top of this.
Gross-Up Is the Real Cost
A benefit costing the corporation a thousand dollars costs more than a thousand dollars, and delivers less than a thousand dollars of value. The corporation pays the cost, the employer CPP on it, the HST self-assessment and any premium tax; the employee pays income tax and employee CPP on the same amount.
That does not make benefits a bad idea. It makes the comparison against simply paying more salary a real one, and for some perks the answer is that salary is cleaner and cheaper for everybody.
What This Calculator Does Not Cover
- Automobile standby charge and operating expense benefits, which have their own formulas and a different HST factor
- Stock option benefits and the deductions that may apply to them
- Shareholder benefits under the separate rules that apply when the recipient is a shareholder rather than an employee
- Provinces outside Ontario, where the sales tax on premiums and the HST factor differ
- Long service award rules and the separate threshold that can apply to them
- Whether a specific benefit is primarily for the employer, which is a facts question
Most of these adjustments are found at year end, when it is too late to withhold. Our T4, T4A and T5 preparation service covers the benefit review, the box 14 and box 40 reporting, the HST self-assessment and the premium tax.
Frequently Asked Questions
Common questions on employee benefits and T4 reporting.
Related Calculators and Guides
More tools for employers running payroll and perks.
Find the Benefits Before the T4 Deadline, Not After
Send us the list of what the corporation pays for on behalf of its people. We will separate the taxable from the exempt, get box 14 and box 40 right, calculate the HST self-assessment and the premium tax, and set the withholding up properly for next year.