Employers who provide benefits to their employees in Canada must be aware of their responsibilities under the Goods and Services Tax (GST) or Harmonized Sales Tax (HST) rules. When employee benefits involve taxable goods or services, employers may have to remit GST/HST on those benefits. This requirement is not always well understood, yet it plays an important role in compliance with the Canada Revenue Agency (CRA) regulations. Understanding how to remit GST/HST on employee benefits can help businesses avoid penalties and maintain accurate payroll and tax records.
Understanding Taxable Employee Benefits
An employee benefit is considered any good, service, or advantage provided to an employee that is not part of their regular salary or wages. These benefits can range from company vehicles and gym memberships to cell phones, free meals, and housing. If the benefit provided includes a taxable supply of goods or services, GST or HST may apply depending on the province of the employee’s workplace.
Examples of Taxable Benefits
- Employer-provided automobile use for personal purposes
- Free or subsidized parking near the workplace
- Memberships to recreational clubs or fitness facilities
- Personal use of cell phones or internet services paid by the employer
- Gifts and awards above the non-taxable threshold
GST/HST and Employee Benefits
Under the Excise Tax Act, when an employer provides a taxable benefit to an employee and has claimed an input tax credit (ITC) for the GST/HST paid on the goods or services, the employer is generally required to remit a portion of that tax. This requirement ensures that businesses do not receive a tax credit for supplies that are ultimately used for non-business purposes, such as personal employee use.
When Must GST/HST Be Remitted?
You must remit GST or HST on an employee benefit if:
- You are a GST/HST registrant
- You provided a taxable benefit to an employee
- You were entitled to claim an input tax credit for the supply
If all three conditions are met, a portion of the GST or HST must be calculated and included in your remittance to the CRA.
Calculating GST/HST on Taxable Benefits
The calculation of GST/HST on a taxable benefit generally depends on the value of the benefit and the applicable tax rate. The value of the benefit is determined based on the fair market value (FMV) of the good or service provided, minus any amount the employee reimbursed the employer.
Steps to Calculate
- Determine the value of the benefit (usually FMV)
- Subtract any amounts paid by the employee
- Apply the GST or HST rate applicable in the employee’s work province
- Use CRA’s prescribed calculation methods if applicable (e.g., for vehicles)
GST vs HST Rates
The applicable rate depends on the province where the employee primarily works:
- GST (5%) applies in Alberta, British Columbia, Saskatchewan, Manitoba, and the Territories
- HST applies in Ontario (13%), Nova Scotia (15%), Newfoundland and Labrador (15%), New Brunswick (15%), and Prince Edward Island (15%)
Employers must use the rate that matches the employee’s primary place of employment, not where the head office or business is located.
Input Tax Credits and Adjustments
If you claimed an input tax credit (ITC) on the goods or services provided as part of a benefit, then you are responsible for remitting the associated GST or HST. If no ITC was claimed, there is generally no requirement to remit tax on the benefit.
The CRA provides a simplified method for calculating the GST/HST due on certain benefits, especially for automobile use and parking. Employers should maintain documentation to support any ITCs claimed and ensure accurate calculations.
Example Scenario
Suppose you provide an employee with a mobile phone plan for personal and business use. The plan costs $100 monthly, and you are entitled to claim the full ITC. If the employee uses 50% of the plan for personal purposes, then $50 is considered a taxable benefit. You would apply the appropriate GST or HST rate to that $50 and remit it as part of your GST/HST return.
Reporting and Remitting GST/HST
The GST or HST calculated on employee benefits should be reported in your GST/HST return for the period in which the benefit was provided. The tax is typically included in line 105 (Total GST/HST and adjustments) of your return.
Payroll Deductions and T4 Slips
It is important to remember that GST or HST on taxable benefits is separate from payroll deductions. While the value of the benefit must be included in the employee’s income and reported on their T4 slip, the GST or HST portion is only remitted by the employer and is not deducted from the employee’s pay.
Deadlines and Record-Keeping
Employers must remit GST/HST on taxable benefits according to their regular GST/HST filing schedule monthly, quarterly, or annually. Keeping detailed records of benefits, including calculations, receipts, and ITC claims, is essential for accurate remittances and for audit purposes.
Recommended Records to Keep
- Invoices and receipts for goods/services provided
- Documentation of employee reimbursements
- FMV assessments of benefits
- Calculations of GST/HST applied
- Details of ITCs claimed on purchases
Common Errors to Avoid
Some of the most common mistakes employers make when remitting GST/HST on employee benefits include:
- Failing to remit GST/HST when ITCs are claimed
- Using the wrong tax rate for the employee’s work location
- Misunderstanding the FMV of the benefit
- Not adjusting for employee contributions or reimbursements
A proper understanding of the rules and using CRA’s guidance can help prevent these errors.
Best Practices for Compliance
To ensure compliance and reduce administrative errors, employers should follow these best practices:
- Stay updated on changes to GST/HST rates and rules
- Train payroll or accounting staff on benefit taxation
- Use standardized methods to determine FMV
- Keep detailed records and supporting documents
- Consult a tax professional for complex scenarios
Remitting GST/HST on employee benefits is a responsibility that employers must take seriously. While it may seem complex at first, understanding the principles of taxable benefits, how input tax credits apply, and how to calculate and report the tax can simplify the process. Businesses that stay informed and follow best practices can remain compliant, avoid penalties, and ensure smooth operations. Whether the benefit is a company vehicle, mobile service, or parking, knowing how to handle GST/HST obligations correctly is an essential part of responsible business management in Canada.