Taxable Benefits in Canadian Corporations: What Shareholders and Employees Need to Know
Whether you're a shareholder, an employee, or both, receiving perks from your corporation can be a great way to enhance compensation. But the Canada Revenue Agency (CRA) has clear rules, many of these perks are considered taxable benefits, which means they must be reported and properly accounted for. This post breaks down the most common taxable benefits and how to handle them without triggering penalties or audits.
Company Vehicles
What’s taxable:
Personal use of a company-owned vehicle
Standby charge and operating benefit
How to account for it:
Track personal vs. business mileage
Use CRA formulas to calculate standby charge
Report the benefit on T4 or T4A slips
Consider mileage reimbursements instead if personal use is minimal
Health & Dental Plans
What’s taxable:
Employer-paid premiums for private health services plans (PHSPs) are generally non-taxable
Coverage for non-medical services (e.g., gym memberships) may be taxable
How to account for it:
Ensure the plan qualifies as a PHSP
Report taxable portions on T4 slips
Keep documentation of plan details and coverage
Housing & Rent
What’s taxable:
Free or subsidized housing
Rent paid on behalf of the employee or shareholder
How to account for it:
Determine fair market value of the benefit
Include the value in employment income
Report on T4 slips and deduct from corporate expenses
Gifts & Awards
What’s taxable:
Cash or near-cash gifts (e.g., gift cards)
Non-cash gifts over $500 annually
How to account for it:
Track all gifts given to employees and shareholders
Report taxable amounts on T4 slips
Use CRA’s gift policy to determine exemptions
Personal Use of Corporate Assets
What’s taxable:
Use of laptops, phones, or other equipment for personal reasons
Internet or phone plans paid by the corporation
How to account for it:
Estimate personal-use portion
Report as a taxable benefit
Maintain usage logs if possible
Shareholder Specific Considerations
Shareholders face extra scrutiny from CRA. If a benefit is provided without a clear employment-related purpose, it may be treated as a shareholder benefit, which is taxable and non-deductible for the corporation.
Best Practices:
Maintain written employment agreements
Document the business rationale for each benefit
Avoid casual perks without formal structure
Conclusion
Taxable benefits can be a powerful tool for compensation and retention, but they must be handled with care. Whether you're offering a company car or reimbursing a gym membership, proper documentation and CRA-compliant reporting are essential. For shareholders, the stakes are even higher, so clarity and consistency are key.