As a generous employer, you probably want to provide a lot of perks and benefits to your employees, but before you give out too many perks, you should understand the Canada Revenue Agency’s rules on these types of benefits. In particular, if you provide free parking to your employees, you may have to report the value of the parking as a taxable benefit.
Calculating the Benefit
To calculate the value of this benefit, use the fair market value of the parking spot minus any cost the employee pays. You want to use this formula even if you own the parking lot and don’t have to pay the fee. Imagine parking spots cost $20 for consumers; this amount is the fair market value of the parking spot. If your employee reimburses you $5, you report a $15 benefit to your employee.
Reporting the Benefit
You should report parking benefits annually on your employees’ T4 slips. Report the value of the benefit as explained above in box 14. Then, note code 40 in the other information section at the bottom of the slip. For example, if you assess that the parking is worth $15 per day and your employee works 245 days during the year, you report a taxable benefit of $3,675 on your employee’s T4 slip. The CRA requires you to withhold Canada Pension Plan contributions and income tax from this benefit. You only have to withhold employment insurance if you provide the benefit in cash to your employee.
Exceptions to the Rule
There are key exceptions for when you don’t have to report parking as a taxable benefit to your employee. Disabled employees, in particular, do not have to report parking as a benefit. In addition, if your business is in a mall or office park with a large free parking lot, you don’t have to report the parking as a benefit. Essentially, in this case, the fair market value of the parking is nothing so there is nothing to report. Scramble parking is when you have fewer parking spots than employees, and workers have to “scramble” to get a spot. Due to the uncertainty of this situation, scramble parking is also not considered a taxable benefit. It’s important not to confuse scramble parking with unassigned parking. To explain, imagine you rent 80 spaces in a parking garage and have 80 employees. Although the employees are not assigned a spot, they get one every day, and as a result, this is a taxable benefit. In contrast, imagine you book 40 parking spots for 80 employees, and the rest of your employees have to pay for parking or find spots in the street. This is scramble parking and is not a taxable benefit. If your employees have to use their vehicle for work, the parking is also not a benefit. Driving to and from work from home doesn’t constitute using your vehicle for work. Rather, your employee must be driving to meet clients, attend meetings, or handle other work-related tasks. Parking can be essential, but if your office is an area where parking costs money, you typically have to consider free parking as a taxable employee benefit. Of course, that’s not the only benefit you may want to offer your employees. To help you decide which benefits to offer, you may want to investigate the tax advantages of certain employee benefits.