Whether you are currently an employee or negotiating an employment offer, here are 7 tax-free perks that can be negotiated into your employment contract.
Employee Stock Options
If your company is publicly traded, one way to increase your compensation is to be granted stock options.
Employee stock options are given by a company to its employees and give the employees the right to buy the company stock at a specific price for a certain time period.
There is no market risk involved to the employee because they are given the option to buy the shares at a specific price.
Related: How Employee Stock Options Work
They are not taxable when granted, and taxes would only arise if they are sold for a price higher than the exercise price.
Company-Paid Cell Phone
The use of a company cell phone is not considered a taxable benefit so long as it is used for business purposes and is required for your job.
Given how high cell phone costs are in Canada, this could be a significant perk over the long term.
If you’re lucky enough to have a company cell phone you’d want to clarify that it is required for your job, because if not it will likely be considered a taxable benefit.
Generally any gift from your employer is a taxable benefit. The exception to this rule is non-cash gifts under $500 to arm’s length employees (ie. not related) per year.
The gifts can be separated but the total value per year cannot be higher than $500 in order for them to be tax-free.
Related: How Does CRA Decide Who to Audit?
Some employers know this rule and work around it by giving gift cards to employees for holidays or special occasions – very similar to cash, but technically not cash so no taxable benefit is created.
Overtime Meals & Allowances
Employees who are required to work overtime by their employer are allowed tax-free meals and allowances as long as they are:
- reasonable amounts (currently about $17 or under)
- the employee works 2 hours or more of overtime immediately before or after their normal work schedule
- the overtime is infrequent in nature
When I articled at an accounting firm, we received $15 meal allowances when we worked 2 hours or more of overtime during tax season (January-April). We would normally work about 12-14 hours per day so it really started to add up.
This is a tax-free perk you may want to negotiate for if you know your job will require some seasonal overtime.
Frequent Flyer Points
Since 2009, employees who accumulate frequent flyer points (Air Miles, Aeroplan Points, etc) while travelling for business do not need to claim these points as taxable benefits.
The points can’t be converted to cash, they can’t lead to a different form of compensation and the business travel must not be for the purpose of avoiding taxes.
The employee must pay for the costs using their own credit card. If the company controls the points (using a company credit card) and then distributes the points to the employees, the fair value of the points must be included in the employee’s income for that year.
Related: Why I Gave Up on Air Miles
When I travel for business, I always make sure to use my own personal credit cards to get the points (and then get reimbursed the travel costs by my employer).
Company-Paid Education Costs
Employees can take courses or receive certifications, degrees or diplomas paid for by their employer without any taxable benefits arising.
CRA says that they can remain tax-free so long as the courses are related to your work and benefit the employer, not you personally.
It is a huge (tax-free) bonus for your employer to pay for education costs – it boosts your resume, makes your skills more valuable in the market and increases your earning potential.
Just make sure the education received is not primarily for your own personal benefit (otherwise a taxable benefit is created).
If your employer requires you to relocate for your job, some people may have to sell their home. The sale of their home may result in a loss.
In some cases your employer may reimburse you for this loss. The good news is that not all of the reimbursement costs are considered to be taxable.
If the loss on the home and reimbursement amount are both less than $15,000, there is no taxable benefit.
When the loss and reimbursement are higher than $15,000, the taxable benefit is: one half of the amount over $15,000.
For example: John is required by his employer to sell his home. He originally paid $300,000. He sells it for $290,000. His employer covers the loss of $10,000. In this case no taxable benefit will arise because the difference between the cost and sale price ($10,000) is reimbursed by his employer but is less than $15,000.
Conclusion: whether you are negotiating a job offer for a new job or negotiating annual perks with your current employer, there are many tax-free benefits an employee can get beyond a salary. It is important to double check with your employer to ensure they will be tax-free since many of the perks depend on each personal situation.
Related: How to Fix Tax Return Errors