1 November 2000 Ministerial Correspondence 2000-0041584 - TAXABLE BENEFITS - LEGAL FEES

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

November 1, 2000

XXXXXXXXXX

Dear XXXXXXXXXX:

The Honourable Martin Cauchon, Minister of National Revenue, has asked me to reply to your letter of July 22, 2000, concerning taxable benefits for employer-paid legal fees.

An advance income tax ruling is a written statement given by the Canada Customs and Revenue Agency (CCRA), stating how it will interpret specific provisions of the Income Tax Act. An advance income tax ruling is given only for proposed transactions that meet the criteria outlined in Information Circular 70-6R3, Advance Income Tax Rulings, a copy of which is attached. We are therefore unable to provide you with a ruling, as requested in your letter.

The confidentiality provisions of the Income Tax Act also preclude me from discussing the affairs of any other taxpayer without his or her written authorization. However, I can offer the following comments with respect to paying legal fees on behalf of a member of a legislative body.

Except where the Income Tax Act provides otherwise, taxpayers generally pay tax on the value of all benefits they receive by virtue of their employment. As you pointed out in your letter, where personal legal expenses of an employee, or of his or her family, are paid or reimbursed by the employer, the amount paid is generally a taxable benefit to the employee.

When a personal expense is incurred by an officer or employee and paid for by the employer, a taxable benefit normally accrues to the employee or officer unless it is determined that the primary benefit of the expense is derived by the employer. When an employee or officer incurs legal costs as a result of an action performed while carrying out his or her duties, in most cases no real benefit is considered to accrue to the employee or officer. One such example is the payment of a director's legal fees incurred in circumstances described in subsections 124(1), (2) or (3) of the Canada Business Corporations Act. In these instances, the employer pays the legal costs that arise because of any civil, criminal or administrative action or proceeding to which the employee is made a party by reason of having been a director or officer of the corporation.

In determining whether there is a taxable benefit, the same criteria are applied to politicians as to all other taxpayers. Since our tax system is based on self-assessment, an employer must normally determine, based on income tax law and the policies of the CCRA, whether an employee has received a taxable benefit.

I appreciate the opportunity to address your concerns.

		Yours sincerely,

		Bill McCloskey
		Assistant Commissioner
		Policy and Legislation Branch

Attachment