A few tax efficient ways to compensate employees

FRIDAY, MARCH 10, 2023

In today’s competitive environment for attracting employees, employers are smart to find benefits that can be received tax free.

A few good ways to compensate and reward employees in a non-taxable manner:

Social Events 

Dinners or other activities, provided they do not cost over $150 per person, excluding related costs (transportation, temporary lodging, etc.).

 Company Health Plans

Most components of a health plan result can be paid for by the company as a non-taxable benefit.  So, employers should consider paying 100% of the cost of these plans.

Gifts

Non-cash gifts and awards to mark special occasions or recognize certain exceptional accomplishments up to $500 in value.

Education

Courses (including associated costs such as books, meals, travel, etc.) leading to a diploma, licence or certificate that will serve to maintain or upgrade the employment-related skills to the extent it is expected that the employee will return to his/her employment for a reasonable period of time after completion of the course

Automobile Allowance

Reasonable per-kilometre automobile allowances are not taxable. An allowance is considered reasonable if it is computed solely based on the number of kilometres driven in connection with the business, and the per kilometre rate cannot exceed 68 cents per kilometre on the first 5,000KMs of 2023, and 62 cents per kilometre thereafter, though depending on the driving required, those rates themselves may not be reasonable

Professional and Union Dues

For federal purposes, if an employer pays or reimburses an employee’s professional dues because membership in the association is of benefit to the employer, the amount is not a taxable benefit for the employee. 

Overtime Payments

Providing meals, or paying an allowance for meals for employees related to overtime worked, will not constitute a taxable benefit to the extent that:

  • Overtime of at least two hours is expected to be worked at the request of the employer

  • Overtime is only put in on an occasional basis

  • The allowance is reasonable – CRA generally considers a value of up to $23 (including sales tax) to be reasonable

 Sports Club Membership

 Membership dues paid to a sports club or gym, as well as exercise rooms, swimming pools and similar offerings can be a non taxable benefit.  Employers need to be able to defend the position that the membership is provided primarily for the employers benefit so there is some risk of the benefit being taxable.

 Please reach out if you have any questions.