Reimbursing employees for spousal travel (Ask an expert)

Loan that exceeds a workers’ compensation award
By Annie Chong
|Canadian Payroll Reporter|Last Updated: 04/08/2014

Question: Next month, our employer is hosting a meeting out of the country for key clients. Some employees will be taking their spouses with them. If employees submit travel expenses to be reimbursed for the cost of their spouse accompanying them, is the reimbursement a taxable benefit to the employee?

Answer: The answer depends on whether the employer asked the employees to bring the spouses and, if so, whether the spouses were spending most of their time on company business while on the trip. If so, the reimbursement would not be a taxable benefit. If, however, the employees brought their spouses on their own and the spouses were not taking part in business functions for the employer, the reimbursement would be a taxable benefit.

A cash reimbursement of the taxable benefit is subject to C/QPP contributions, EI and QPIP premiums and income tax deductions. A non-cash reimbursement is not subject to EI or QPIP premiums. At year-end, report the benefit in box 14 and in the "Other Information" area using code 40 on a T4. For Quebec, report the benefit in boxes A and L on an RL-1.

Loan that exceeds a workers’ compensation award

Question: We provided a no-interest loan to an employee while he awaited a workers’ compensation claim decision. The workers’ compensation body approved his claim, but the amount they awarded him was less than the amount of the loan. Are there any payroll consequences as a result?

Answer:The CRA and Revenu Québec consider the excess amount (the amount of the loan that is higher than the claim award) to be employment income in the year the workers’ compensation body paid the claim. Since it is employment income, it is subject to C/QPP contributions, EI premiums, QPIP premiums and income tax deductions. You must also report it on the employee’s T4 and RL-1 slips as employment income.

The CRA and Revenu Québec do not consider the rest of the loan to be employment income if the workers’ compensation body accepts the employee’s claim and the employee repays the loan. Since it is not employment income, no source deductions or T4 and RL-1 reporting is required.

If the employee failed to repay the loan, the loan would then be employment income subject to source deductions and T4 and RL-1 reporting.

Annie Chong is the manager of the payroll consulting group at Carswell, a Thomson Reuters business.