Taxable Benefits, Allowances and Reimbursements

This article gives a simple overview of how taxable benefits, allowances and reimbursements work in Canada. For full rules and examples, see the CRA’s official guide.

What is a benefit, an allowance, or a reimbursement?

• A benefit is something an employer gives an employee that provides a personal advantage, like using a company car or having certain expenses paid.

• An allowance is a fixed amount of money given to an employee to cover expected costs—usually without receipts—such as a monthly phone or car allowance.

• A reimbursement is when the employer pays an employee back for actual work-related expenses they already paid for, supported by receipts.

Benefits and allowances are often taxable, while reimbursements usually are not.

What is the difference between cash, near-cash, and non-cash benefits?

• Cash benefits are payments made directly to the employee, such as bonuses, gift cards with a cash value, or allowances. These are almost always taxable and subject to deductions.

• Near-cash benefits are items that function like cash or can easily be converted to cash—for example, prepaid credit cards or general-purpose gift cards. These are also generally taxable.

• Non-cash benefits are goods or services provided to the employee, such as parking, a company car for personal use, or employer-paid memberships. These can still be taxable, depending on the situation.

Understanding which type of benefit you’re providing helps determine the right deductions and reporting rules.

What are your responsibilities as an employer?

If you provide benefits to your employees, you will always have to go through the same following steps:

1. "Determine if the benefit is taxable"

2. "Calculate the value of the benefit"

3. "Calculate payroll deductions"

4. "File an information return"

The most challenging parts are often determining whether a benefit is taxable and applying the correct payroll deductions. Fortunately, the CRA provides a simplified chart to help employers understand which rules apply.