Question

Payroll. Canada.

Understanding the difference between a cash taxable allowance, a cash taxable benefit and a non-cash taxable benefit is critical when explaining the calculation of net pay to an employee. In your own words, explain whether each allowance and benefit is or is not subject to Canada/Québec Pension Plan (C/QPP) contributions, Employment Insurance (EI) premiums, Québec Parental Insurance Plan premiums and income tax. Provide an example of a cash taxable allowance, a cash taxable benefit and a non-cash taxable benefit.?

Answer 1

What is an Allowance?

An allowance is the financial benefit given to the employee by the employer over and above the regular salary. These benefits are provided to cover expenses which may be incurred to facilitate the discharge of service for example Conveyance Allowance is paid to foot expenses incurred for commuting to workplace. Some of these allowances are taxable under the head Salaries. A few of them again could be partly taxable and few others are non-taxable or fully exempt from taxes.

A) CASH TAXABLE ALLOWANCE: The process of paying for items with an allowance rather than being reimbursed for them. Businesses often offer cash allowances for travel expenses and other employee needs. They are taxable income, but they can be claimed as work related expenses.

Example: marriage allowance, bereavement allowance or holiday allowance.

B) CASH TAXABLE BENIFIT: A number of common benefits in Canada are actually taxable benefits and must be reported when an individual files his personal income taxes. A taxable benefit is a payment from an employer to an employee that is considered a positive benefitand can be in the form of cash or other type of payment.

In other words, Taxable benefits are benefits provided to  employees that the employer has to add to the employee’s income each period to determine the total amount of income that is subject to source tax deductions.

Example: Dearness Allowance, Entertainment Allowance, Overtime allowance. etc.

C) NON-CASH TAXABLE BENIFIT: A non cash benefit is any benefit that an employer pays for an employee that is of a private nature. For example as part of an employee’s contract they may be provided with a rent free house and a vehicle for private use. These are non cash benefits. Other non cash benefits may include, but are not limited to: Free power, water and gas Telephone for private use Domestic help – cleaners, gardeners, guards School fees Below market rate loans