Working from home — and certainly work from home arrangements on the scale experienced over the past 19 months — would not be practically possible without the use of technology. And of all the available technology, cell phones and internet service are the two essentials without which work-from-home arrangements almost literally can’t function.
Almost everyone, of course, already had a cell phone and at-home access to the internet when work-from-home arrangements became necessary. However, when workplaces closed and employees began working from home on a massive scale early in 2020, it soon became apparent that most employees would need to upgrade their existing services to meet the demand resulting from one (or more) family members working from home or engaged in online schooling.
In some cases, the employer was prepared to subsidize those increased costs, or even to cover cell phone and internet costs entirely. Such an arrangement, however, raises the question of when employer-provided cell phones and internet service are simply the tools needed by an employee to do his or her job — and when they become more than that and constitute benefits to the employee, which must be included in income, and on which tax must be paid.
Not surprisingly, the Canada Revenue Agency (CRA) has formulated and issued an assessing policy on the circumstances in which taxable benefits arise. And, perhaps also not surprisingly, given the wide range of cell phone and internet service plans available, that assessing policy is a bit complicated. And, most important from the employee’s point of view, the way in which an employer pays for (or reimburses) an employee’s cell phone and internet costs can by itself determine whether such assistance has no tax consequences or becomes a taxable benefit and/or income in the hands of the employee.
There are several types of costs involved in acquiring and using a cell phone and using internet service, as follows, and each has its own set of tax consequences.
The first cost is that of acquiring a cell phone. If the employer purchases a cell phone and provides it to the employee to enable them to carry out their employment duties, the cost of that cell phone is not a taxable benefit to the employee. However, if the employee purchases the phone and is then reimbursed by the employer for that cost, the fair market value of that cell phone is a taxable benefit to the employee — and that taxable benefit is assessed even if the employee uses the phone for employment-related purposes.
The next category of cell phone related costs is that of a cell phone service plan, of which there are an almost limitless range of options at different cost levels. Where an employer pays for (or reimburses) the cost of the employee’s cell phone plan, the portion of the cost attributable to employment-related cell phone use does not, reasonably enough, create a taxable benefit to the employee. Where (as would most often be the case) the cell phone is used for both employment and personal purposes, the portion of the cost attributable to personal use is treated as a taxable benefit to the employee, unless the employee reimburses the employer for that personal use portion.
In order to make that allocation, of course, it would be necessary to calculate the number of minutes of cell phone use that was attributable to personal use and that which was used for employment-related purposes. The amount of record keeping required to do so is likely more than most employees and employers would be willing to undertake. In recognition of that reality, the CRA has arrived at a reasonable administrative policy to deal with the issue. Under that policy, an employee’s personal use of an employer-paid cell phone plan will not result in a taxable benefit to the employee if all of the following three criteria are met:
- the cost of the plan is reasonable;
- the plan is a basic plan with a fixed cost; and
- the employee’s personal use of the service does not result in charges that are more than the basic plan cost.
In light of the administrative positions and policies put forward by the CRA, the best way to avoid unwanted tax consequences would seem to be for the employee to use a cell phone provided by the employer, to have the employer buy a fixed-price plan which provides the most generous airtime provision that can be justified by the employee’s employment-related use of the phone, and to keep the total business and personal use minutes under the basic airtime limit. Where that’s the case it won’t matter, in any given month, what the allocation between personal and employment use is.
Unfortunately, the CRA has not formulated a similar administrative policy with respect to employer-paid internet services at home. Where the employer pays for (or reimburses the employee for) the cost of an internet service at home to help the employee carry out employment duties, only the portion of that service used for employment purposes is not a taxable benefit. Put another way, where personal use is made of an employer-provided at-home internet service, the portion of the cost attributable to that personal use will (unless the employee is reimbursed by the employer for such costs) result in a taxable benefit to the employee. How such allocation is to be arrived at, as a practical matter, is a question left up to the employer, who must be prepared to determine both the percentage of employment use and the fair market value of that use and, if asked, to justify the position taken to the CRA.
One final note — where the employer provides an employee with an allowance for cell phone or internet services, that allowance must, in all circumstances, be included in the employee’s income for the year.