Does my employer have to gross-up a taxable benefit before adding it to my T4?

Yes. When an employer treats something as a taxable benefit — a company loan, personal use of a vehicle, an excessive gift, or any other perk that doesn't qualify for an exception — it has to gross up the value of that benefit appropriately and include it in your income reported on your T4, the same slip that reports your regular salary and wages.

This isn't just a reporting formality; it also means source deductions get applied to the value of the benefit like they would to any other pay. In practice, this can mean less cash actually lands in your paycheque in the pay period the benefit is processed, even though you didn't receive the benefit itself as cash — the withholding on a non-cash benefit still has to come from somewhere, and it's usually deducted from your regular pay.

This is worth understanding if you're ever surprised by a lower-than-expected paycheque around the same time you received a taxable perk, since the gross-up and withholding on that benefit is very likely the reason. If your T4 shows an amount you don't recognize, or your take-home pay dropped without an obvious explanation, asking your payroll department to walk through which specific benefit was grossed up, and how, is a reasonable and useful thing to do.