Although salaries, wages, commission, tips and other types of remuneration are not subject to GST or QST, other forms of compensation provided to employees, commonly referred to as “taxable benefits,” may be subject to the two taxes.
Employers that are registrants must pay GST and QST on certain benefits granted to employees if the benefits consist of taxable (excluding zero-rated) goods or services made available to employees and if all or a portion of the value of the benefits (including the GST and QST, as applicable) is to be included in the calculation of the employees' taxable income. The GST and QST must also be included in calculating the employer's net tax.
Employers are not required to pay the taxes if they are not eligible for an input tax credit (ITC) or input tax refund (ITR) in respect of the goods or services. Under the QST system, this exemption also covers goods and services that are subject to the ITR restrictions for large businesses.
Taxable employee benefits on which employers must remit GST and QST include
- personal use of an automobile owned or leased by the employer
- room and board
- non-monetary bonuses
- use of frequent-flyer points
- gifts valued at more than $500
The amounts of GST and QST payable by the employer on a taxable benefit unrelated to automobile operating costs are 4/104 (for GST) and 9.975/109.975 (for QST) of the total value of the benefit. The total value of the benefit is the sum of the reported benefits (including GST and QST) and the amounts reimbursed by the employee with respect to stand-by charges and operating costs related to an automobile. Where the taxable benefit is related to automobile operating costs, the amounts of tax payable by the employer are equal to the prescribed percentages of 3% for GST and 6% for QST.
|Benefits related to the personal use of an automobile||2011||3%||5.4%|
|2012 and subsequent years||3%||6%|
|2013 and subsequent years||4/104||9.975/109.975|
In certain cases, property purchased or leased for the purpose of providing taxable employee benefits is subject to ITC and ITR restrictions. For example, an employer may not claim ITCs or ITRs in respect of goods or services acquired exclusively (90% or more) for an employee's personal use or consumption (such as membership in a fitness club). In such cases, the employer is not required to pay GST or QST on the taxable benefit granted to the employee. Under the QST system, this exemption also covers goods and services that are subject to the ITR restrictions for large businesses.
As a rule, the GST and QST payable on taxable employee benefits are due once a year, on the last day of February. This is the deadline for calculating employee benefits for income tax purposes and for issuing T4 and RL-1 slips. The total value of the benefits reported on an employee's T4 and RL-1 slips includes the GST and QST applicable to the taxable benefits received.
The GST and QST payable must be indicated on the appropriate return for the reporting period covering the last day of February of the year following the taxation year in which the benefits were granted.
If the last establishment where the employee worked is located in a participating province, the HST rates may apply. For more information, see GST/HST memoranda 9-1, Taxable Benefits (Other than Automobile Benefits), and 9-2, Automobile Benefits. Both are published by the Canada Revenue Agency.