If employees are allowed to park at work for free, or at a reduced rate, is this a taxable benefit?
The answer to the parking question is not always as straightforward as one might think, which makes it one of the more challenging taxable benefits for payroll to administer.
To avoid fines and penalties from Canada Revenue Agency (CRA)/ Revenu Québec audits and unhappy employee reactions, it’s important for payroll practitioners to understand the rules around parking as a taxable benefit, clearly communicate those rules to employees and keep accurate records on how they treat employee parking.
According to the CRA and Revenu Québec, if an employer provides parking that is free of charge or is less than the fair market value for its employees, the value of the parking is a taxable benefit and must be included in the employees’ income.
An exception applies for employers who provide free parking to an employee for business reasons if the employee needs to regularly use a vehicle to carry out job duties (such as visiting clients and making deliveries). The CRA states the term “regularly” generally refers to an employee who needs to use a vehicle at least three days in a five-day work week. If the employee uses the vehicle for business less frequently, the CRA will allow employers to pro-rate the benefit.
In a recent webinar on parking as a taxable benefit, the CRA noted “business reasons” do not include situations where driving to work and parking are just more convenient for the employee. For example, the CRA says the following types of reasons would not justify tax-free parking — lack of sufficient public transit or the need for an employee to drive to work and park there in order to get to work on time or to work overtime. The CRA’s view is “the costs of getting to and from work are personal.”
The CRA also provides an exception for parking provided free of charge to an employee (or the employee’s attendant) who is blind or who has a severe and prolonged mobility impairment.
The taxable benefit is the fair market value of the parking, less any amounts the employee pays for it. The benefit must also include the GST/HST/QST. The CRA advises employers can determine the fair market value by comparing their parking lot to other paid parking spots in the area, looking at factors such as price charged to park and amenities offered (such as indoor parking and lighting). The agency points out the employer’s cost to provide the parking is not the fair market value. To ensure the parking benefit accurately reflects the current fair market value, the CRA suggests employers periodically review the parking cost to ensure it is up to date.
If an employer cannot accurately determine a fair market value for the parking, the CRA and Revenu Québec do not require the employer to include the parking benefit in an employee’s income. (The CRA still considers the employee to have received a benefit, it just does not require it to be included in income.)
This could occur if an employer is located in a shopping mall or industrial park where free parking is available for both employees and customers or if the employer provides what the CRA calls “scramble parking.”
‘Scramble parking’
Scramble parking is parking where there are “significantly fewer parking spaces” than there are employees who normally need to find a parking space.
The CRA does not define what it means by “significantly fewer,” but it does provide the following pointers for employers to consider when deciding if they offer scramble parking:
•Look at the number of employees who need to park on a normal work day compared to the number of parking spots that are available. For example, if an employer has 300 employees who want to park on most days, but there are only 100 parking spots, the CRA would generally consider this to be scramble parking since there are significantly fewer spots than needed. If, however, the employer paid for parking in another lot for overflow parking, this would nullify the scramble parking in the first lot.
•Consider how often all employees need to park at the workplace at the same time. For example, if the employer with 300 workers and only 100 spots has the employees working three equal shifts of 100, there would be enough spots for all employees who want to park, so scramble parking would not apply. Similarly, if the employer holds company-wide meetings periodically (a few times a year) where all staff are expected to attend, including shift workers, teleworkers and workers from the employer’s other locations, and there are not enough parking spaces for everyone, this would not mean the employer has scramble parking because on a normal work day there is sufficient parking for employees who regularly work at that location at the same time.
•Remember that scramble parking is not the same as unassigned parking where employees can park in any spot they choose.
Parking questions for payroll practitioners to consider
When deciding if parking is a taxable benefit, payroll practitioners should consider the following questions:
•Does the employee need to drive and park for business reasons? If so, how often in a week?
•Is parking at the employer’s location free for both employees and non-employees (e.g., in a shopping mall or industrial park)?
•If other parking in the area is not free, what is the average rate to park?
•Does the employer provide enough spots for all employees who want to drive to work or is there scramble parking?
If the answers show that parking is a taxable benefit, the value of the benefit is subject to Canada/Quebec Pension Plan contributions and income tax deductions. If paid in cash, the benefit is also subject to Employment Insurance and Quebec Parental Insurance Plan premiums.
A cash benefit would apply where the employee receives cash or a cheque as reimbursement for paid parking. Non-cash parking benefits apply where the employer owns the parking lot and provides free parking to the employee or arranges and pays for employees to park in a parking lot.
At year end, include the taxable benefit in box 14 on the employee’s T4, as well as in the “Other Information” area of the form, using code 40. For Quebec employees, also report the benefit in boxes A and L on the RL-1.
Regardless of whether the parking benefit is taxable, it is essential that employers keep books and records supporting the decisions they have made about parking benefits, including records that show: which employees have a taxable parking benefit and which do not (this can be important if the employer provides parking passes to all employees, even those who do not drive to work); the reasons why some employees are not taxed for free parking; the fair market value of the parking provided; how they arrived at the fair market value; and whether they have scramble parking.
Without these documents and a thorough understanding of parking benefits, a CRA/Revenu Québec audit may come up with different answer to the question of whether or not the parking is a taxable benefit.
Sheila Brawn is the editor of the Canadian Payroll Manual. For more information, visit www.carswell.com.
To avoid fines and penalties from Canada Revenue Agency (CRA)/ Revenu Québec audits and unhappy employee reactions, it’s important for payroll practitioners to understand the rules around parking as a taxable benefit, clearly communicate those rules to employees and keep accurate records on how they treat employee parking.
According to the CRA and Revenu Québec, if an employer provides parking that is free of charge or is less than the fair market value for its employees, the value of the parking is a taxable benefit and must be included in the employees’ income.
An exception applies for employers who provide free parking to an employee for business reasons if the employee needs to regularly use a vehicle to carry out job duties (such as visiting clients and making deliveries). The CRA states the term “regularly” generally refers to an employee who needs to use a vehicle at least three days in a five-day work week. If the employee uses the vehicle for business less frequently, the CRA will allow employers to pro-rate the benefit.
In a recent webinar on parking as a taxable benefit, the CRA noted “business reasons” do not include situations where driving to work and parking are just more convenient for the employee. For example, the CRA says the following types of reasons would not justify tax-free parking — lack of sufficient public transit or the need for an employee to drive to work and park there in order to get to work on time or to work overtime. The CRA’s view is “the costs of getting to and from work are personal.”
The CRA also provides an exception for parking provided free of charge to an employee (or the employee’s attendant) who is blind or who has a severe and prolonged mobility impairment.
The taxable benefit is the fair market value of the parking, less any amounts the employee pays for it. The benefit must also include the GST/HST/QST. The CRA advises employers can determine the fair market value by comparing their parking lot to other paid parking spots in the area, looking at factors such as price charged to park and amenities offered (such as indoor parking and lighting). The agency points out the employer’s cost to provide the parking is not the fair market value. To ensure the parking benefit accurately reflects the current fair market value, the CRA suggests employers periodically review the parking cost to ensure it is up to date.
If an employer cannot accurately determine a fair market value for the parking, the CRA and Revenu Québec do not require the employer to include the parking benefit in an employee’s income. (The CRA still considers the employee to have received a benefit, it just does not require it to be included in income.)
This could occur if an employer is located in a shopping mall or industrial park where free parking is available for both employees and customers or if the employer provides what the CRA calls “scramble parking.”
‘Scramble parking’
Scramble parking is parking where there are “significantly fewer parking spaces” than there are employees who normally need to find a parking space.
The CRA does not define what it means by “significantly fewer,” but it does provide the following pointers for employers to consider when deciding if they offer scramble parking:
•Look at the number of employees who need to park on a normal work day compared to the number of parking spots that are available. For example, if an employer has 300 employees who want to park on most days, but there are only 100 parking spots, the CRA would generally consider this to be scramble parking since there are significantly fewer spots than needed. If, however, the employer paid for parking in another lot for overflow parking, this would nullify the scramble parking in the first lot.
•Consider how often all employees need to park at the workplace at the same time. For example, if the employer with 300 workers and only 100 spots has the employees working three equal shifts of 100, there would be enough spots for all employees who want to park, so scramble parking would not apply. Similarly, if the employer holds company-wide meetings periodically (a few times a year) where all staff are expected to attend, including shift workers, teleworkers and workers from the employer’s other locations, and there are not enough parking spaces for everyone, this would not mean the employer has scramble parking because on a normal work day there is sufficient parking for employees who regularly work at that location at the same time.
•Remember that scramble parking is not the same as unassigned parking where employees can park in any spot they choose.
Parking questions for payroll practitioners to consider
When deciding if parking is a taxable benefit, payroll practitioners should consider the following questions:
•Does the employee need to drive and park for business reasons? If so, how often in a week?
•Is parking at the employer’s location free for both employees and non-employees (e.g., in a shopping mall or industrial park)?
•If other parking in the area is not free, what is the average rate to park?
•Does the employer provide enough spots for all employees who want to drive to work or is there scramble parking?
If the answers show that parking is a taxable benefit, the value of the benefit is subject to Canada/Quebec Pension Plan contributions and income tax deductions. If paid in cash, the benefit is also subject to Employment Insurance and Quebec Parental Insurance Plan premiums.
A cash benefit would apply where the employee receives cash or a cheque as reimbursement for paid parking. Non-cash parking benefits apply where the employer owns the parking lot and provides free parking to the employee or arranges and pays for employees to park in a parking lot.
At year end, include the taxable benefit in box 14 on the employee’s T4, as well as in the “Other Information” area of the form, using code 40. For Quebec employees, also report the benefit in boxes A and L on the RL-1.
Regardless of whether the parking benefit is taxable, it is essential that employers keep books and records supporting the decisions they have made about parking benefits, including records that show: which employees have a taxable parking benefit and which do not (this can be important if the employer provides parking passes to all employees, even those who do not drive to work); the reasons why some employees are not taxed for free parking; the fair market value of the parking provided; how they arrived at the fair market value; and whether they have scramble parking.
Without these documents and a thorough understanding of parking benefits, a CRA/Revenu Québec audit may come up with different answer to the question of whether or not the parking is a taxable benefit.
Sheila Brawn is the editor of the Canadian Payroll Manual. For more information, visit www.carswell.com.
