Are Employees Taxed on Cell Phone Use?

Evelyn Jacks

Employees who use a cell phone in their work may be wondering about claiming costs as an employment expense.  CRA has some very complex rules to accompany the issue and  both employers and employees should be aware of them.  Here is a primer:

An employer may pay for or reimburse the cost of an employee's cell phone service plan or Internet service at home.  The portion used for employment purposes will not be considered a taxable benefit in the following instances according to the CRA:

• If the employer provides the employee with a cell phone (or other handheld communication device), the fair market value (FMV) of the cell phone or device is not a taxable benefit. 
• If the employer pays for or reimburses the cost of an employee's cell phone service plan or internet service at home to help carry out their employment duties, the portion used for employment purposes is not a taxable benefit.
• If the employer reimburses the employee for the cost of their own cell phone (or other handheld communication device), the FMV of the cell phone or device is considered a taxable benefit to the employee.  This is the case even if the employee used, lost, or damaged the cell phone or device while carrying out their employment duties.
• If part of the use of the cell phone or Internet service is personal, the employer must include the value of the personal use in the employee's income as a taxable benefit. The value of the benefit is based on the FMV of the service, minus any amounts the employee reimburses the employer.
• For cellular phone service only, CRA will not consider the employee's personal use of the cellular phone service to be a taxable benefit if all of the following apply:

• the plan's cost is reasonable
• the plan is a basic plan with a fixed cost
• your employee's personal use of the service does not result in charges that are more than the basic plan cost

The employer is responsible for determining the percentage of employment use and the FMV.

Also, if the employer gives the employee an allowance for cellular phone or Internet services, the allowance must be included in the employee’s income.  Include any GST/HST that applies in the value of this benefit.

January is a good time to review these rules as employers prepare T4 slips in this most unusual year.  Working with a DFA-Tax Services Specialist™ or MFA™-Business Services Specialist can help.

These and other employment-related issues that have new relevance as a result of the pandemic will be discussed at the January 20 CE Summits.  Deadline for early registration is Friday January 15.