In addition to the health club membership and free parking space you get with
your new position, the company has also rewarded you with a BlackBerry and will
pay the full monthly bill.
A cause for celebration?
Perhaps, but your personal use of the company BlackBerry or cellphone may
constitute a taxable benefit, which means you must cough up the tax. The issue
of tax-free cellphone use was addressed by the Canada Revenue Agency last month
in a published response to a taxpayer's inquiry.
The taxpayer wrote to the CRA and described a situation where an employer
pays the full cost of airtime plans for its employees because they are required
to use the cellphones for their jobs. The plans allow for a specified number of
airtime minutes per month. Any airtime over that amount is billed separately.
The CRA was asked to comment whether an employee's personal use of airtime
minutes would represent a taxable benefit.
Under the Income Tax Act, the value of all benefits received or enjoyed "by
virtue" of employment must be included in one's income. However, the CRA was
prepared to make an administrative exception in this case because the primary
reason for an employer to provide a cellphone plan to employees is for business
purposes. As the CRA stated, "the incidental personal use of the cellular phone
by the employee would generally not be regarded as a taxable benefit where such
personal use does not contribute to additional charges being incurred over and
above the basic plan price."
The CRA did caution that the plan selected by the employer must be
"reasonable in respect of the employee's business-related needs." In other
words, if the employer purchased a more costly plan than necessary for
employee's business needs, a taxable benefit could arise equal to the cost of
the excess minutes.
The CRA also stated that a taxable benefit may arise if additional charges
are incurred due to the employee's personal use of airtime or long-distance
charges.
Take the example of Mark, an employee with a large consumer electronics
company who often travels for business. His employer provides him with a
cellphone and a basic plan that allows 200 minutes of airtime a month.
In December, Mark used 250 minutes of airtime, and 40 minutes were personal.
Since Mark's personal use amounted to 40 minutes of extra airtime charged to his
employer, he would have to pay tax on this taxable benefit.
On the other hand, say Mark's personal use of airtime minutes in December
were 70 minutes out of a total of 250 minutes. He went over his employer's
200-minute plan, but only the additional costs with respect to the 50 minutes
(and not the value of 70 minutes) would represent a taxable benefit.
Note that these taxable benefits would be further increased if any of the
personal calls resulted in additional long-distance charges not covered by
Mark's monthly plan. Clearly, having to review a monthly cellphone or BlackBerry
bill each month to pick out the personal calls would be an administrative
nightmare.
Some companies have started charging their employees a flat fee of about $20
a month to cover personal use of the company cellphone, negating the need for a
detailed accounting of calls. Assuming the $20 covers the cost of the employees'
personal calls, this policy also eliminates any taxable benefit issues, albeit
at a higher cost to the employee.