Employers should prepare to remit GST/HST and QST on employees' 2019 taxable benefits
Many employers that offer taxable benefits to their employees must remit amounts of GST/HST and QST related to these benefits by March 31, 2020. These amounts, which are due each year, are an actual cost to employers since they are not collected from the employees. When determining the proper amounts to remit, employers should remember that some of their 2019 calculations may be different from the prior year's calculations due to the phase-out period of the recaptured input tax credits (RITC) for HST purposes in certain provinces and the phase-out of input tax refund (ITR) restrictions for QST purposes in Quebec.
Employers have various responsibilities related to the taxable benefits provided to their employees. For example, employers are required to determine whether the benefits provided to their employees are taxable for income tax purposes, determine the appropriate value (which may include GST/HST, QST and PST), calculate and remit the required payroll deductions, and report these benefits on employees' T4 slips and other applicable slips. Employers must also annually calculate and remit GST/HST and QST, if applicable, on some of these taxable benefits. Under the GST/HST and QST rules, employers are deemed to have collected these amounts and, as such, must remit GST/HST and QST amounts even though their employees are not required to pay these taxes. Taxable benefits take many shapes and forms which can complicate some of these responsibilities.
Remitting the correct amount of GST/HST and QST
While salaries, wages, and other cash remuneration are not subject to GST/HST, many employers provide taxable benefits which are subject to GST/HST and for which they have to remit GST/HST based on the value of the benefits and certain reimbursements. Employers may wish to review the following questions to help determine the amounts of GST/HST that they are deemed to have collected:
In general, the percentages that employers must use to calculate the amounts of GST, HST and QST that must be remitted is determined based on the last establishment where the particular employee ordinarily worked or to which the employee ordinarily reported in the year. The percentages can vary due to the various taxes applicable across Canada as well as the types of benefits, the RITC rules and other restrictions.
As a reminder, similar rules apply for QST purposes.
Generally, the GST/HST and QST owing on employees' taxable benefits are deemed to have been collected at the end of February of the year after the year the benefits were provided. Employers must include these tax amounts in their reporting period that include the last day of February. As such, an employer with a monthly GST/HST reporting period that provided taxable benefits to its employees in 2019 must include GST/HST owing on those benefits in its February GST/HST return, which is due by March 31, 2020.
Where an employee reimburses its employer for a taxable benefit, the employer may also have to remit GST/HST. The CRA considers amounts reimbursed by employees for most taxable benefits to be the consideration (i.e., payment) for a supply. If the taxable benefits are with respect to goods and services that are subject to GST/HST, employers must remit the applicable GST/HST on these payments in their GST/HST return for the reporting period in which they are received. As for amounts reimbursed by employees for taxable benefits related to standby charges and operating expenses of an automobile, they are included in the employers' calculations of the GST/HST owing on employees' taxable benefits.
Different rules apply for shareholders' taxable benefits. The amounts of GST/HST owing on taxable benefits are deemed to be collected on the last day of the corporation's taxable year in which the benefit was provided to the shareholders. For example, a corporation with a June 30 year-end that has monthly GST/HST reporting periods must include the GST/HST owing on the shareholders' taxable benefits in its June GST/HST return that is due by July.
Changes for 2020 employees' taxable benefits
Prince Edward Island and Quebec are in the process of gradually eliminating their recaptured ITC rules for HST purposes and input tax refund (ITR) restrictions for QST purposes. As a result, employers that are subject to these provincial rules should keep in mind that the phase-out will affect the GST/HST and QST they owe on taxable benefits. Quebec started to eliminate the ITR restrictions as of January 1, 2018 and Prince Edward Island started the phase-out period of its recaptured ITC rules on April 1, 2018.
We can help
KPMG's Indirect Tax professionals can help employers meet their upcoming GST/HST and QST deadlines and other obligations related to employee taxable benefits, including the proper identification and calculation of taxable benefits to help ensure they have not underpaid or overpaid CPP contributions, EI premiums or other payroll taxes on those benefits.
For more information, contact your KPMG advisor.
Information is current to January 14, 2020. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500
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