In Canada, most bonuses awarded by an employer are taxable and must be claimed. However, not all bonuses are treated the same, and some are eligible for an exemption, depending on the type of bonus and its value. Luckily, determining if your bonus is taxable and filing a T4 for it are fairly straightforward processes that you can do by mail or online.
Determine if your bonus is taxable. Up to two noncash gifts for special occasions, such as Christmas, Hanukkah or a birthday, are tax free, provided the value doesn't exceed $500. Awards that recognize achievements are also tax free, provided they are not paid in cash and do not exceed $500. Cash or near-cash gifts -- for example, gift certificates -- are fully taxable at market value.
Determine the type of bonus that you're declaring. A signing bonus is considered employment income and must be declared as such. Any periodic bonus -- for instance, yearly -- is also considered income but is taxed differently via the bonus method of taxation, which will vary depending on the nature of the bonus. Check with your employer to determine the nature of your bonus before determining how to calculate the tax you will owe on it.
Ensure that the amount of the bonus is entered on Line 101 on the T4 slip. This line is for employment income, which is how a bonus in counted for the purposes of taxation. It is the responsibility of your employer to enter both the value of your bonus on Line 101 and the tax paid for that bonus on Line 437. If you are unsure if your employer has included your bonus on your T4 or whether she has deducted tax from it at the source, ask her.
File your T4 as you normally would, either by filling out the paper form and mailing in your return or by using an online or software-based program and using Netfile to complete your return. Remember, your bonus and the tax payable on it are already covered on Lines 101 and 437.
This article is intended as a general guide and does not constitute professional financial or tax advice. Visit an accredited accountant or contact the Canadian Revenue Agency for more specific advice about your tax situation.
- HRM Guide: Taxing Employee Gifts and Awards
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- Chase. "We're Thanking You With an Up to $600 Offer!" Accessed Sept. 26, 2020.
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- Capitol One. "360 Checking Account." Accessed Sept. 26, 2020.
Harrison Pennybaker began writing in 2004. He has written as a student and a journalist, specializing in politics, travel, arts and culture and current affairs. He holds a Master of Arts in political science and is currently pursuing a Doctor of Philosophy in political science.