Each year, the Canada Revenue Agency provides a list of commonly requested adjustments to an employer’s payroll as a result of wages and benefits not being correctly reported. Here is the CRA’s latest top ten list:
1 Unreported payments –
Includes unreported salary and wages such as bonuses, commissions and cash payments to employees that must be included on a T4 as well as a failure to report payments for services to sub-contractors on the prescribed T4A form.
2 Reclassification of employment status –
Individuals operating as self-employed contractors when they should be treated as employees or vice versa.
3 Automobile standby and operating expense –
Employees are not maintaining proper logbooks to separate personal and business driving so employers are not calculating the benefit correctly. Incorrect perception that if a vehicle doesn’t meet the definition of an “automobile” there is no benefit to be reported.
4 Parking –
Employers not reporting the value of this benefit and when they do, they report a minimum amount and not the true fair market value (FMV).
5 Vehicle allowances –
Employers are providing nonaccountable vehicle allowances to their employees and not reporting the benefits as income. This can include cash allowances, gas cards, or reimbursements.
6 Personal and living expenses (employees or shareholders) –
Many corporate owners look at this type of expense as personal drawings and are therefore not reporting it as taxable income. These include appropriations of corporate assets for personal use. Some employees, as part of their compensation agreement, may have personal living expenses paid for by the employer unless these fall under a specific exemption. This would be considered taxable income.
7 Housing, low/free rent, board & lodging –
With the exception of special or remote worksites, most employees that receive free or subsidized housing from their employer would be deemed to receive a taxable benefit based on FMV. In some instances, the value of the benefit may be reduced.
8 Security/Stock options –
Security/Stock options have become a common method of compensating officers and employees, providing them with a financial benefit as well as a sense of ownership with the employer. Taxable benefits are not being reported when stocks options are exercised.
9 Travel expenses and allowances –
In order to be treated as non-taxable, travel expenses and allowances must be reasonable and clearly validated as business expenses that primarily benefit the organization.
10 Medical expenses, insurance and provincial plan premiums –
Certain benefits provided by employers must be classified as taxable and included in employment income. These include the direct reimbursement of medical expenses, certain insurances such as life and AD&D, as well as employer-paid provincial medical such as BC Medical Services Plan.
This article is an an excerpt from Dialogue Magazine, which is received by members of the Canadian Payroll Association.