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shelly-wilsonair
Level 2

How to set up a non cash taxable fringe benefit for payroll in Canada. I understand there is a workaround. I need the step by step instructions.

 
10 Comments 10
IntuitSharon
Level 3

How to set up a non cash taxable fringe benefit for payroll in Canada. I understand there is a workaround. I need the step by step instructions.

Hello Shelly.wilsonair,

You can record a non-cash taxable fringe benefit in QuickBooks Online Payroll by pairing an additional pay type with an after tax deduction. Here's how that process works.

First, create the additional pay type. The pay type you choose will determine how the benefit is taxed and recorded on the T4, so I recommend checking out the taxability of pay types article at the end of this post to help you make your choice. To add a pay type:

  1. In the left navigation bar, click Employees.
  2. Click the employee's name.
  3. Click Edit employee.
  4. Under How much do you pay this employee? click Add additional pay types if you haven't selected any other pay types, or click the pencil icon if you have.
  5. Select the pay type you want to add.
  6. If you click the pencil icon next to the pay type, you can rename it to how you want it to appear on the cheque.
  7. Click Done.

Now add the deduction. The deduction offsets the additional pay so the benefit is recorded and taxed, but your employee doesn't receive cash for it. To add a deduction:

  1. In the left navigation bar, click Employees.
  2. Click the employee's name.
  3. Click Edit employee.
  4. Under Does this employee have any deductions?, click Add a new deduction.
  5. Click the Deduction/contribution drop-down arrow and select New deduction/contribution. If you don't see the Deduction/contribution drop-down arrow, go to the next step.
  6. In the Deduction/contribution type drop-down, select Other deductions.
  7. Choose Other after tax deductions as the Type.
  8. Enter the required information about the deduction, then click OK.

You're now set to run payroll with the fringe benefit. If this is a one-time thing for the employee, remember to go back into their settings afterward and remove the deduction.

The custom deduction will always debit a liability account based on the accounting preferences in your payroll settings. You will need to create a transaction outside of payroll to represent distributing the benefit, then credit this liability account to maintain accounting accuracy.

One way to do this is to create an Expense. When you fill out the transaction, set the Bank/Credit account to the account you used to fund the benefit. Then, add the liability account to the line item under the Account column.

To find out which liability account to use, check your payroll settings. Here's how:

  1. Go to the Gear icon and select Payroll Settings.
  2. Click on Accounting under Preferences.
  3. The liability account will be listed in the Other Liability & Asset Accounts section next to the name of the deduction.

Let me know if you need anything else!

Sharon


How different pay types and deductions affect taxes and T4's: https://community.intuit.com/articles/1278212

Kavco
Level 2

How to set up a non cash taxable fringe benefit for payroll in Canada. I understand there is a workaround. I need the step by step instructions.

Is this the way to set up a Standby charge (for personal use of company vehicle)?

 

 

Rebecca R
QuickBooks Team

How to set up a non cash taxable fringe benefit for payroll in Canada. I understand there is a workaround. I need the step by step instructions.

Hi there Kavco,

 

Thanks for joining the thread and choosing QuickBooks Online Payroll to pay your employees! Setting up a standby charge or any type of employee deduction can certainly be done with the method outlined above. I want to provide you with some extra resources.

 

For more information on how to set up the standby charge and other deductions:

 

 

I'm also including an article that is specifically about pay types and deductions. It includes a great chart that breaks down the taxes (if applicable) for specific deduction types:

 

 

Once you set up a new employee deduction it will automatically be deducted from each cheque. If you only wish to use it from time to time, you can zero out the value while running payroll. Here's how:

 

  1. From the Preview Payroll screen, select the Edit pencil next to the net pay for your employee.
  2. Find the deduction under Employee Deductions and you should see a field with a pre-saved amount.
  3. Here you can erase the value that's showing and enter a new value, or set it to 0.00 if you don't wish to implement the standby charge for a specific pay.

If it is a one-time charge, feel free to remove it from your employee's profile once used by selecting your employee's name, finding step 6, and clicking the Garbage can next to the deduction you want to remove.

 

I hope this helps you get that standby charge set up and ready to go for your next pay run!

 

Kavco
Level 2

How to set up a non cash taxable fringe benefit for payroll in Canada. I understand there is a workaround. I need the step by step instructions.

I have done a lot of test paycheques and compared the calculations with the CRA's payroll calculator.  I think this thread is outdated.

 

The QBO function for non-cash Deductions/Contributions is all I needed to do for a Standby Charge calculation to be correct.  I did not need to create a separate allowance.

 

The steps I followed are:

1.  Payroll Settings/Deductions/Add a New Deduction/Contribution

2.  Category:  Taxable Benefits (non-cash)

3.  Type: Company Vehicle

4.  Description:  Standby Charge - click OK

 

Then go to Preferences/Accounting Preferences:

 

5. Go down to Company Contribution Expense Accounts.  I chose "I use different accounts for different groups of company contributions".  I chose the expense account I had created in the payroll expense section.

6.  Go down to Other Liability & Asset Accounts and IF QBO WOULD ALLOW AN EXPENSE ACCOUNT HERE then there would be no need for a journal entry to work around these benefits.  So, instead I entered a Liability account "Other payroll deductions".

 

After I ran payroll I had to workaround by creating a recurring entry to debit my liability account and credit my expense account - thus having no effect on the company's financial statements in the end but the employee will have paid tax on the benefit.

 

Wow!  that was a lot of research.  There are no clear instructions anywhere about this...even in the payroll manual.

 

 

 

 

LauraAB
QuickBooks Team

How to set up a non cash taxable fringe benefit for payroll in Canada. I understand there is a workaround. I need the step by step instructions.

Hi there Kavco,

 

Thanks for taking the time to share the steps you took to record the contribution you were looking for! I can see you spent a fair bit of time on this and sharing this response will surely help others that come across this thread too.

 

I hear what you're saying about how it would be helpful to have a more straightforward process to create and record this kind of contribution, so I encourage you to submit feedback to our product development team. When you go through the steps in the How do I submit feedback? article, your comments are forwarded to the product development team for consideration as QuickBooks continues to grow and evolve.

 

Feel free to stop by Community again if you have other questions or methods you'd like to share. Your efforts are what make this forum a great place for users to find the answers to make managing their books easy.

 

Take care!

northerngirl
Level 4

How to set up a non cash taxable fringe benefit for payroll in Canada. I understand there is a workaround. I need the step by step instructions.

I have problems with non-cash benefits also.  I added a life insurance benefit and set it up as non-cash.  The taxes are correct, but the benefit does not appear on the paystub.

If I add another pay type (and a deduction for the same amount), then it becomes cash and EI is deducted.  Non-cash benefits are not subject to EI.

How can I make the non-cash benefit appear on the paystub as required by legislation?

JamesM4
QuickBooks Team

How to set up a non cash taxable fringe benefit for payroll in Canada. I understand there is a workaround. I need the step by step instructions.

Hi northerngirl. Thanks for chiming in on this thread. I'd like to make sure we're both on the same page. Could you walk me through how you added the life insurance benefit on your end? Did you follow any of the steps provided on this thread? 

northerngirl
Level 4

How to set up a non cash taxable fringe benefit for payroll in Canada. I understand there is a workaround. I need the step by step instructions.

I have tried both IntuitSharon (March 2019) and Kavco's (October 2020) method.  Kavco's method uses the standard QBO Non-Cash Contribution which works for doing the tax calculation, however the non-cash benefit does not print on the paycheque.

 

If it is done the way IntuitSharon describes, then the additional pay type is taxed as a cash item, subject to EI, which is incorrect.  I was not able to find a way to remove the EI calculation.

 

Right now, I just need the non-cash company contribution to appear on the earnings portion of the paystub for the employees.

JamesM4
QuickBooks Team

How to set up a non cash taxable fringe benefit for payroll in Canada. I understand there is a workaround. I need the step by step instructions.

I see what you're saying. Based on the program design, the non-cash benefits don't show up on the paystub. I'd encourage you to connect with an accounting professional that can assist you with setting this up the right way while adhering to the legislation. In the meantime, I recommend checking out this helpful article here that explains more about supported pay types and deductions in QuickBooks. If you're not in contact with an accounting professional, you can reach out to one on our site using this link here. Feel free to ask other questions, I'm here to help.

northerngirl
Level 4

How to set up a non cash taxable fringe benefit for payroll in Canada. I understand there is a workaround. I need the step by step instructions.

Hi, JamesM4.  I have already read the article link you provided and it confirms that the non-cash items are not included on the paycheque which does not meet Ontario legislation requirements.  As for being in contact with an accounting professional, I am a payroll professional, a pro-advisor, and work in a public accounting firm.  This is a shortfall of QBO and QBO needs to rectify it.  Feedback has been sent.

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