Although providing employees with parking may appear to be a benefit for employees, it can also adversely affect an employee (and even the employer) who is not aware of the unintended tax consequences.  My colleague Natasha Miklaucic has advised that, in most cases, the Canada Revenue Agency (“CRA”) has considered employer-provided parking to be a taxable benefit to an employee.  Section 6(1)(a) of the Income Tax Act (Canada) requires taxpayers to include in their income the value of benefits of any kind received or enjoyed “in respect of, in the course of, or by virtue of, an office or employment”.  Thus, income amounts to more than just salary and wages; it also includes the value of non-cash benefits received by the employee.  I asked Natasha some questions to help organizations determine whether there may be a taxable benefit issue they should be looking into.

Question:  When is employer-provided parking a taxable benefit to an employee?

Natasha:  Basically the key question is whether the parking constitutes a benefit primarily for the employer or for the employee.  It is a very fact-specific issue.  In one case,  the Tax Court of Canada concluded that 14 out of 16 employees who were provided with parking passes had received a taxable benefit because they were the chief beneficiaries of the parking passes.  In essence, by providing free parking, those employees did not have to pay for parking out of their own pockets.  The other two employees did not receive a taxable benefit because one worker did not use the pass, and the other worker was required to travel for employment in the course of employment.

Question:  Does it matter whether the employer owns the parking lot?

Natasha:  No.  Generally the CRA considers employer-provided parking to constitute a taxable benefit to theemployee, unless the employee has a disability or the parking is provided for business purposes.  This is soregardless of whether the employer owns the parking lot.  In addition, who the employer is (e.g., government orprivate sector) does not factor into the key question noted above.

Question:  What happens to an employee if an employee is considered to have received a taxablebenefit?

Natasha:  If the parking benefits primarily the employee, then the value of that benefit for tax purposes must be determined.  That value is based on fair market value of the parking space to the employee (the amount the employee would be charged if the employer didn’t provide free parking).  The employee will be taxed to the extent that the value of the benefit exceeds the amount paid, if any, to the employer for the parking.  The employee will also be assessed for Canada Pension Plan (“CPP”) contributions and employment insurance (“EI”) premiums to the extent that the employee has not otherwise paid the maximum CPP and EI amounts for the year. 

Question:  Can employers be held liable too?

Natasha: Yes. The employer has an obligation to include the value of the benefit on the employee’s T4 and to withhold and remit appropriate employee source deductions to the CRA. Where an assessment is conducted, the employer is also assessed for employer CPP contributions and EI premiums on the amount of the benefit where the maximum amounts for that employee for the year have not otherwise been paid.  Moreover, GST/HST may apply to the amount of the benefit. 

Question:  Is it possible to provide parking that would not be a taxable benefit to an employee?

Natasha:  Yes.  It has to be parking provided for business purposes.  The CRA’s administrative policy is to not assess employer-provided parking as a taxable benefit to an employee where the employer provides a free space for an employee who is regularly required to use his or her vehicle to carry out the duties of employment, such as travelling off-site to meetings or service calls.  An employee must use his or her vehicle for employment-related travel on more than half of the number of workdays during a work week (e.g., three or more days per week in a normal five-day work week).  An example of a situation that would not meet the “regular use” test is parking to facilitate working irregular or extended hours.

Question:  If employers have been providing parking to their employees that may be considered a taxable benefit, what should they be doing now?

Natasha:  There may be situations where no tax may be payable, especially based on the determination of the fair market value of the benefit.  For example, in the case of “scramble parking” (i.e., where there are fewer parking spaces than employees who want parking and the spaces are available on a first-come, first-served basis), there is a possibility that no benefit would be added to the employee’s remuneration.  Another possibility is the reduction of the amount of the taxable benefit, such as when there is incidental employment-related use.  Whether employer-parking is a taxable benefit is dependent on the specific facts.  Employers and employees should seek the advice of a tax professional to determine whether the parking provided would be considered a taxable benefit before being confronted with a reassessment from the CRA. The e