Taxable vs non-taxable benefits — what goes on the T4

Owners tend to think of perks as goodwill. The CRA thinks of them as compensation. The starting position for almost every benefit an employer provides is that it is taxable, has to be valued, and has to appear on the employee’s T4. The exceptions are real but narrow, and they come with conditions.

Gifts and awards: the $500 rules

Generally, gifts, awards and long-service awards are taxable. Under the CRA’s administrative policy, a non-cash gift or award is not taxable where all of the following apply: the combined fair market value of an unlimited number of non-cash gifts and awards is $500 or less in the year including taxes; a gift is for a special occasion such as a religious holiday, a birthday, a wedding or the birth of a child; a recognition award is for the employee’s overall contribution to the workplace; and it is not a reward tied to job performance. Anything above $500 is taxable on the excess.

Small items of trivial value — coffee or tea, T-shirts, mugs, plaques and trophies — are not counted against the $500.

Cash and near-cash are always taxable

The policy does not apply to cash or near-cash. Near-cash includes anything easily converted to cash, digital currency, and prepaid cards issued by a financial institution on a major payment network. A reimbursement — where the employee buys something and submits a receipt — is cash.

When a gift card counts as non-cash

A gift card is treated as non-cash only where all of the following apply: it comes preloaded and can only be used at a single retailer or an identified group of retailers; its terms and conditions clearly state the amount cannot be converted into cash; and you keep a log recording the employee’s name, the date, the reason, the type of card, the amount and the retailer. Miss any of those and the card is near-cash, and taxable.

Long-service awards

A long-service award is non-taxable where it is a non-cash gift or award, recognises 5 or more years of service, at least 5 years have passed since the last long-service award to that employee, and its fair market value is $500 or less including taxes. This limit is separate: unused room in one $500 limit cannot be moved to the other.

Cell phones and internet

An allowance for cell phone and internet is always taxable — no exception applies. But a phone you own and require the employee to use for their duties is not a taxable benefit, and a cell phone service plan is not taxable where you require its use for employment duties, the plan has a reasonable fixed cost, and the employee’s personal use does not push the bill above the plan cost. If personal use creates extra charges, that excess is taxable unless the employee reimburses you. Reimbursing an employee for a phone they bought themselves is taxable.

For home internet, the business-use portion is not a taxable benefit.

Parking

Parking you provide or reimburse is generally taxable, valued at fair market value — the price a similar spot would fetch in the surrounding area, not what it costs you. Three situations sit outside that:

• Business use. Not taxable where the employee regularly has to use a vehicle to perform their duties. The CRA treats “regularly” as an average of at least 3 days in a 5-day work week, and will accept a proration below that. Commuting between home and work does not count as business use.
• Shopping centre or industrial park. Not taxable where the lot is open to employees and the public, spaces are free, and spaces are not assigned.
• Scramble parking. Not taxable where there are no more than 2 spaces for every 3 employees who want parking, spaces are unassigned, and parking is offered to everyone who wants it.

Vehicles are their own subject

An employer-provided vehicle is not a simple benefit — it produces a standby charge and an operating expense benefit, calculated on their own rules. That is covered separately in the company car taxable benefit, and the alternative of paying a per-kilometre allowance is in vehicle and mileage deductions.

Reporting and the T4

A taxable benefit is not just a note to file. It is added to the employee’s income, it generally attracts CPP and income tax withholding, and depending on whether it is cash or non-cash it may also attract EI. It then appears on the T4 — deadlines in slip filing deadlines. The common failure is discovering the benefit at year-end, after twelve pay runs went out without withholding on it.

The bottom line

Assume taxable, then check whether a specific CRA administrative policy applies and whether you meet every condition in it. Keep the log for gift cards, keep the parking valuation research, and put benefits through payroll as they happen rather than reconstructing them in February. Benefit treatment and T4 reporting are part of our payroll services, and how to compensate yourself is covered in salary vs dividends.

This article is general information for Canadian business owners and is current as of July 2026. It is not tax, legal or accounting advice, and it does not create a client relationship. Tax rules change and your situation is unique — please speak with a CPA before acting on anything here.