Which of the following best describes a taxable allowance?

A taxable allowance is a fixed, predetermined amount paid to an employee for certain expenses, which is not required to be accounted for with receipts. Because it is not a direct reimbursement of an actual, substantiated business expense, the Canada Revenue Agency (CRA) considers it part of the employee's income. As such, this amount is subject to statutory deductions, including Canada Pension Plan (CPP) contributions, Employment Insurance (EI) premiums, and income tax.

A. This describes a reimbursement, which is a non-taxable repayment for actual expenses, unlike an allowance.

C. An allowance is a cash payment, whereas a non-cash benefit is a good or service provided to the employee.

D. This describes a retiring allowance or severance pay, which has specific tax treatment related to termination of employment.

1. Canada Revenue Agency. (2023). T4130 Employers' Guide - Taxable Benefits and Allowances. Chapter 3, "Allowances and reimbursements," Section "Allowances."

2. National Payroll Institute. (2024). Payroll Compliance Practitioner (PCP) - Payroll Compliance Legislation. Module 2: Employment Income. The curriculum distinguishes between allowances (fixed amounts, generally taxable) and reimbursements (repayment of actual costs, generally non-taxable).