Vacation pay earned by an employee is generally considered:

Vacation pay is a form of remuneration paid to an employee for time not worked, as mandated by employment/labour standards legislation. The Canada Revenue Agency (CRA) defines it as employment income. As such, it is subject to all statutory deductions, including Canada Pension Plan (CPP) contributions, Employment Insurance (EI) premiums, and federal and provincial/territorial income tax. It must be included in the employee's total income reported on their T4 slip at year-end.

A. Vacation pay is explicitly defined as taxable income by the CRA and is not considered non-taxable under any standard circumstance.

C. A retiring allowance is a payment related to the termination of employment or retirement, which is distinct from vacation pay entitlement.

D. An expense reimbursement is a non-taxable payment to an employee for specific, receipt-supported business costs they incurred, unlike vacation pay.

1. Canada Revenue Agency. (2024). T4001 Employers' Guide - Payroll Deductions and Remittances. Chapter 5, "Deducting income tax," Section "Special payments," and the "Special Payments Chart."

2. Canada Revenue Agency. (n.d.). Line 10100 – Employment income. "Employment income includes... salaries, wages, commissions, bonuses, tips, gratuities, and honorariums." Vacation pay falls under this definition.

3. National Payroll Institute. (2023). Payroll Fundamentals 1. Chapter 2: Remuneration.