1- Taxable benefits

It is essential to determine a person’s tax status as self-employed or employee. The consequences are significant for both the worker and employer. The deductions permitted when calculating an employee’s taxable income are far more restricted than those applying to self-employed workers. In addition, mandatory tax deductions by the employer only exist for employees, which encourages some employers to opt for hiring freelancers.

There is no legislation which clearly defines employed versus self-employed status. Nevertheless, the case law on the issue makes it possible to identify criteria regarding employee status, including:

• Exclusivity of employee services;
• Non-competition clause;
• Professional responsibilities assumed by employee;
• Tools provided by employer;
• Inability for employee to be replaced;
• Employment-related benefits (insurance, pension plans, etc.).

In general, an employee’s income includes all income received in the year by virtue of his/her employment in the form of salary, commissions, bonuses, and tips. Unless otherwise provided, employees are also taxable on the value of the benefits and allowances they receive from their employer.

Insurance Plans

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.

Employer Automobile

The employee benefit relating to the use of an automobile includes:

• A standby charge;
• A benefit for operating costs.

Personal Use

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:

For automobile salespersons, the employer may use a rate of 1.5% of the average cost of automobiles instead of the 2% rate³.

• Employer-leased automobile:

• 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:

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 work­related 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

• $0.33⁶ × 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.

Benefits relating to electric vehicles

Although the operating costs of an electric vehicle are lower than those of a gas-powered vehicle, the tax authorities have confirmed that the operating costs benefit must be calculated the same way. However, the benefit amount calculated this way can be reduced by the electricity costs the employee assumes personally with respect to the personal use of the vehicle.

When an employer provides an electric automobile to an employee and installs a charging station at the employee’s home, there is no taxable benefit provided the charging station is owned by the employer and the employer is the primary beneficiary thereof. Repayment by the employer of reasonable electricity costs paid by the employee for the use of an electric automobile for business purposes is not a taxable benefit.

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.

Logbook

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.⁸

You can download L’Auto-route, a tool designed by Raymond Chabot Grant Thornton to help you easily and efficiently compile the data required for the logbook.

Employee Loans

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 5% for the fourth quarter of 2024. The benefit is reduced by the interest paid by the employee no later than 30 days following the end of the year. The employee must also include such a taxable benefit in his/her income if the loan is granted to a related person, such as the person’s spouse, for example.

However, no taxable benefits are calculated if all of the following conditions are met:⁹

• The total amount of all the loans received by the employee is $10,000 or less per calendar year;¹⁰
• The term of the loan(s) is 60 days or less;
• The loan was not received as a result of shares held by the individual.

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, whether it is current, future or past employment; it could therefore be a loan granted to a retired employee.

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.

Free or subsidized lodging

Free or subsidized lodging provided to an employee, including a residential building superintendent, is a benefit in kind, the value of which is equal to the cost of the lodging minus any amount paid by the employee.

The cost of the lodging is generally considered to be the amount the individual would have paid had a similar lodging been rented from a third party. The CRA however considers that the value of the benefit could be reduced if the accommodation is larger than what the employee needs or if, because of its location or an agreement with the owner, the accommodation contains things like equipment, public access, or storage facilities that infringe the employee’s privacy or quiet enjoyment of the accommodation.

Moreover, if the accommodation is provided in a remote region (prescribed by regulation) where there is no developed rental market, the value of the accommodation is determined on the basis of a ceiling amount set by the tax authorities each year.¹¹

Lastly, Revenu Québec accepts that the value of the benefit for lodging provided to a restaurant or hotel employee be calculated as follows: the lowest weekly rate for a room rented to paying customers (including taxes) up to a maximum of $58 for 2024 minus the weekly rent paid by the employee for the room.

¹ The benefit is reduced by all amounts repaid by the employee in the year.

² Automobile cost includes commodity taxes.

³ This election is possible 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 average 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.

This method cannot be used to calculate the taxable benefit a shareholder receives, unless it is possible to demonstrate that the shareholder receives the benefit as a result of his/her employment.

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 2024, $0.30 for individuals employed in selling or leasing automobiles.

⁷ Exclusions include primarily taxis and certain vans and minivans with three seats or fewer used to transport merchandise. For more details, consult L’Auto-route: to keep a record of your vehicle expenses.

⁸ This rule, including the penalty for failure to comply with the requirements, also applies to a shareholder.

⁹ See the CRA’s Loans and employee debt page.

¹⁰ Includes loans of different term durations and principal amounts. If the term of the loan spans 2 calendar years, the loan will count as part of the $10,000 limit for the year in which the loan was received.

¹¹ For more details on this calculation for federal purposes, refer to the Employers’ Guide – Taxable Benefits and Allowances (T4130) and the page on Allowable Ceiling Amounts. In Quebec, see Guide IN-253 – Taxable Benefits.