As tax season approaches, employers and employees across Canada submit their taxes to the Canada Revenue Agency (CRA); however, determining what is taxable can be unclear, exhausting, and frustrating for all parties involved. With constant changes from the CRA, it can be challenging to know what you can and should be submitting.
This month, we outline the key things you need to know when it comes to taxable and non-taxable benefits. To ensure you are organized throughout the year, we define what is taxable and non-taxable and highlight which reports to refer to when it’s time to submit your taxes.
Each year, organizations submit their business expenses to CRA to pay their taxes; however, group health benefits have tricky stipulations on what is considered a taxable or non-taxable benefit.
Taxable benefit: When a benefit is taxable, it is added to the employee’s annual earnings and then taxed, which is reflected on their T4. A taxable benefit could be an annual bonus, a wealth or personal spending account, gifts over $500, and more.
Non-taxable benefit: When a benefit is non-taxable, it does not count toward an employee’s income. Health coverage, employee assistance programs (EAP), and dental coverage are examples of non-taxable benefits.
To quickly determine your organization’s taxable and non-taxable benefits, our team created a cheat sheet to demonstrate the CRA tax status for common health benefits.
Tip: Cross-reference your health coverage with this resource, as a common error in payroll is to group all insurance benefits as taxable, even when - as seen above - some insurance benefits are non-taxable.
What’s taxable and non-taxable ultimately affects the accuracy of payroll, and more specifically, which deductions are taken from your employees. The amount you pay for premiums (the amount your organization pays monthly to your insurance provider) needs to line up with employee deductions (the amount taken from employees’ pay based on their health coverage plan).
If your benefit amounts are logged and submitted incorrectly, you’ll have to:
This process can be time consuming and lengthy. Thankfully, we’ve provided a few suggestions to keep you organized so no reconciliations are needed.
Regular billing statements: Your insurance provider likely sends you an itemized, monthly billing statement outlining your organization’s coverage plan. Review your monthly statements’ coverage to confirm your numbers are up-to-date and the correct deductions are made based on your benefit plan. The deductions made per employee must equal the premium paid each month. If you are not receiving monthly billing statements, reach out to your insurance provider and request these reports.
Tip: To avoid discrepancies, confirm premiums and deductions are aligned monthly, quarterly, and annually.
Premium report: Request a premium report at the end of the year. The premium report is a breakdown of each monthly premium in one convenient, annual report. The detailed report outlines the premium amount paid monthly, your organization’s headcount, and a breakdown of paid claims.
Taxable claims report: Your organization may have a healthcare spending account in addition to your health coverage plan or solely a healthcare spending account. To monitor how your organization is tracking toward the healthcare spending maximum, you can request an annual taxable claims report. A taxable claims report will streamline the process for when you need to claim the expense to CRA.
Still lost? We’ve listed additional resources around taxable and non-taxable benefits that may provide more clarity:
We’re here for you. Reach out to us at email@example.com for additional assistance.