When it comes to executive perks, it's best to begin with the premise that
everything's taxable.
Still, the Canada Revenue Agency publishes a list of various benefits that
are generally considered "non-taxable." (Interpretation Bulletin IT-470R
Employees' Fringe Benefits available at cra-arc.gc.ca). Among these are such
things as discounts on the employer's merchandise, subsidized meals in the
employer's cafeteria (provided the employee pays a "reasonable charge" to cover
the cost of the actual food) and employee counselling services.
Here's a quick review of some of the more popular perks for executives and
the CRA's position on their taxability.
Air miles and frequent-flyer points Many employers allow employees to keep
points or air miles accumulated through business travel. The Canada Revenue
Agency has long maintained that the value of these points constitutes a taxable
employment benefit. The question is how this benefit ought to be measured.
A 1995 Tax Court of Canada decision dealt with the valuation dilemma in the
case of an employee who used his Aeroplan points, accumulated through business
travel, for personal use. The judge concluded that the taxable benefit should be
valued at "the most heavily discounted economy ticket sold for the flight in
question."
What if you use the points to fly business class? Since business-class
tickets are normally not discounted, the judge also provided a formula for
calculating the appropriate taxable benefit by pro-rating the business-class
fare. For example, a round-trip business ticket on Air Canada from Toronto to
Vancouver costs about $2,600 before taxes. By contrast, the cheapest
economy-class ticket is about $400, while a full-fare unrestricted economy seat
costs about $1,250. The taxable benefit would therefore be calculated as $832
($400/$1,250 X $2,600).
Note that since the employee determines when he or she uses the points, the
employer generally will not report the value of the benefit on the employee's T4
slip. So, it's up to the employee to calculate and report the taxable benefit in
the year in which the free trip is taken.
Taxi chits Many employers provide employees who work late with taxi chits to
go home, especially when there are safety concerns. Under the CRA's
administrative policy, the value of these taxi chits will generally not be
taxable, provided that "for security or other reasons ... public and private
vehicles are neither allowed nor practical."
Home computers and Internet access Does your employer provide you with a home
computer and pay your monthly high-speed Internet bill? If so, as long as the
computer and Internet service is provided "for the purpose of developing
computer and Internet skills," these reimbursements by your employer are
generally tax free.
Fitness memberships The CRA generally considers employer-paid gym or health
club memberships to be a taxable employment benefit since such memberships are
primarily of benefit to the employee (as opposed to the employer). This is
despite the fact, as has been argued by taxpayers on several occasions, that the
employer may also "derive a benefit by way of improved employee performance and
a reduction in absenteeism."
Note that if your employer has its own recreational fitness facilities, the
value associated with this benefit will generally not be taxable, provided the
gym or facility is available to all employees.
However, in a 2004 tax case, an employee was successful in arguing that
membership dues paid to the Winnipeg Squash Club by his employer should be only
75% taxable since the "membership was used to promote new business, entertain
clients and for other purposes related to the corporation's operation."