A taxable benefit is a perk that is provided at no cost to the nanny. The perk is for the nanny to use for his/her personal use, on his/her personal time.
Some common examples of taxable benefits that nannies’ often receive are:
- transit passes
- room and board
- gym memberships
- cell phones (proportion for personal use)
- cars (available for non-work related purposes)
- cash gifts and gift certificates.
“Although the nanny doesn’t physically pay for it, it does increase the nanny’s taxable income, therefore reducing the nanny’s net (or take home) pay”, says Deborah Shure from NannyTax (www.nannytax.ca). For example, if the nanny’s annual salary is $40000 and she receives a $100 bus pass every month ($1200 per year), then the nanny’s taxable income is now $41200. Taxable benefits are a great way to sweeten the employment package during the negotiation stage.
What makes a difference is how the nanny receives the taxable benefit. If the nanny is given money each month to pay for the bus pass, then that is insurable income, which means that income taxes, employment insurance (EI) and Canada Pension Plan (CPP) premiums are applied to that amount. The employer must also pay the employer’s portion of EI and CPP to the CRA. If the employer buys the bus pass and hands the pass to the nanny each month, then that is non-insurable income. (Taxes come off and so does CPP, but EI is not deducted). In this case, the employer is also paying the employer’s portion of CPP to the CRA but again, EI is not a factor in a non-insurable benefit.
Dental, private health insurance, mileage at a prescribed rate provided by the CRA (when the nanny uses her own car for work purposes) and tickets to events/activities with the kids (ie. swimming pools, movies, museums) are all examples of non-taxable benefits. In addition, if that bus pass is provided to the nanny only so that she can pick up and drop off the kids at their school, then this is not a benefit at all, and simply a tool provided to the nanny in order for her to do her job.
For more information visit the CRA’s website.
Kate McGeachin has been matching nannies and families for over 12 years. She lives in Vancouver with her husband and her daughters. When she is not camping, skiing or biking, she is scouring the Internet looking for the latest vegetarian-gluten free recipes.