Tax Advantages of Employee Benefits

by Craig Anthony

2 min read

Employee benefit programs help to attract quality talent to your team. The right incentives also boost employee satisfaction and retention, ultimately saving you money on recruiting, interviewing, and training costs. Additionally, as an employer, you can can claim the cost of most employee benefits as a business expense, which helps lower your taxable income.

Health and Dental Plans

If you offer private health or dental services plans to your employees, you can write off the cost you pay for premiums, and your employees don’t have to pay any income taxes on the benefit. Additionally, if you decide to offer mental or physical health counselling services for your employees, the Canada Revenue Agency also allows you to claim the cost as a business expense and doesn’t require your employees to report the benefit as income.

RRSP Matching Programs

When your employees contribute to a registered retirement savings plan (RRSP), they don’t have to pay income tax on their contributions. If you decide to match contributions, you may claim the matching amount as a business expense. However, you must remit payroll deductions such as employment insurance premiums and Canada pension plan premiums on your contribution. Alternatively, you receive similar tax benefits when you establish group plans for tax-free savings accounts or registered education savings plans.

Employee Stock Options

Unfortunately, in most cases, you cannot claim a deduction for offering employee stock options, but there are exceptions in certain cases. However, the value of this benefit can be immeasurable for employers. Most importantly, when you give your employees stock options, you offer them a share of profits, instantly making them personally invested in the company’s success.

If your business is a Canadian-controlled private corporation (CCPC), your employees are not taxed on this benefit until they sell the stocks. However, if your business is not a CCPC, your employees may have to report and pay tax on the benefit when they exercise the option to buy the shares. Then, they may have to report a capital gain or loss when they sell the shares.

Wage Replacement Plans

Whether you have a group wage replacement plan or a non-group plan, you can deduct the contributions you make as a business expense. If you have a group plan, your employees don’t have to report your contributions as taxable income. However, if they stop working and receive wage replacement benefits, they have to report those payments as income. Conversely, if you have a non-group plan, your employees have to report the premiums you pay as income but don’t have to report benefits received through the plan.

Gifts

If you give your employee a cash bonus, they must pay income tax on that amount, and you must remit source deductions. However, you can save a bit of money by giving your employees non-cash gifts such as golf clubs, new phones, cameras, or other items. The Canada Revenue Agency allows you to give one gift worth up to $500 to each employee per year. You may write off the value of the gift, and your employees don’t have to report it as income.

References & Resources

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