Although salaries, wages, commissions, tips and other types of remuneration are not subject to GST or QST, other forms of compensation paid 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 part of the value of the benefits (including the GST and QST, as applicable) must 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) for 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; and
- gifts valued at more than $500.
The GST and QST that employers must remit for taxable benefits that are unrelated to automobile operating costs are equal to 4/104 (for GST purposes) and 9.975/109.975 (for QST purposes) of the total value of the benefits. 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. If the taxable benefits are related to automobile operating costs, the employer must remit GST and QST on the total value at the prescribed percentages of 3% GST and 6% QST.
|Benefits related to the personal use of an automobile||3%||6%|
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 cannot 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
However, effective January 1, 2018, large businesses can claim ITRs at the rate of 25% for 2018, 50% for 2019, 75% for 2020 and 100% for 2021 onward. Employers that are large businesses must therefore include, in calculating their net tax, an amount for these benefits at the following rates:
- 25% of the benefit the employee must include in his or her income for 2018;
- 50% of the benefit the employee must include in his or her income for 2019;
- 75% of the benefit the employee must include in his or her income for 2020; and
- 100% of the benefit the employee must include in his or her income for 2021 onward.
As a rule, the GST and QST calculated 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 reported 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.