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.
Principal Issues: Whether an allowance for special clothing gives rise to a taxable benefit under either of paragraph 6(1)(a) or paragraph 6(1)(b) of the Act.
Position: Question of fact.
Reasons: Where a uniform or special clothing, including protective clothing, is supplied by, or the cost thereof is reimbursed by, the employer, there is no taxable benefit. Where an employee receives an unaccountable allowance to compensate for the cost of special clothing, the amount received is generally considered to be employment income pursuant to paragraph 6(1)(b) of the Act.
A. Seidel
XXXXXXXXXX (613) 957-2058
2004-006000
March 23, 2004
Dear XXXXXXXXXX:
Re: Taxable Benefits - Special Clothing
This is in reply to your January 29, 2004, letter in which you requested our comments concerning the taxability of a clothing allowance being paid to plainclothes police officers.
You describe a situation where, twice a year, plainclothes police officers are given a non-accountable clothing allowance by their employer. The employer does not specifically dictate how an employee spends the allowance and no receipts are provided to the employer to show that the allowance was actually spent on clothing.
The particular circumstances in your letter on which you have asked for our views relate to an actual situation involving specific taxpayers. As explained in Information Circular 70-6R5, it is not this Directorate's practice to comment on transactions involving specific taxpayers other than in the form of an advance income tax ruling. To the extent that you require confirmation of the tax consequences of proposed transactions involving specific taxpayers, you should be requesting an advance income tax ruling. However, we would point out that advance income tax rulings are not provided in respect of transactions that are substantially completed. Completed transactions are reviewed by the local tax services office. Nevertheless, the following general comments may be of assistance.
Paragraph 6(1)(a) of the Income Tax Act (the "Act") provides that a taxpayer shall include, in computing income from an office or employment, the value of board, lodging and other benefits of any kind whatever received or enjoyed by the employee in the year. In addition, paragraph 6(1)(b) of the Act provides that a taxpayer shall include, in computing income from an office or employment, all amounts received by the taxpayer in the year as an allowance for personal or living expenses or as an allowance for any other purpose. With the exception of uniforms or protective clothing required to be worn in performing the duties of employment, the cost of clothing is considered to be a personal expense.
As a result of the Federal Court of Appeal decision in Her Majesty the Queen v. Glenford R. Huffman (90 DTC 6405) ("Huffman"), the Canada Revenue Agency concluded that an allowance paid to a plainclothes police officer for special clothing would not have to be included in the employee's income in those situations where the plainclothes police officer was on full-time plainclothes duty and there was sufficient evidence to show that the allowance was actually spent on special clothing. If, in a taxation year, a particular plainclothes police officer can provide such evidence, actual receipts being the best evidence, that the allowance received by the officer was used to acquire special clothing, no taxable benefit arises. If however, it cannot be shown that the allowance has, in fact, been expended on the special type of clothing described in Huffman or it cannot be shown that the whole amount of the allowance received was expended on such special clothing, the relevant amount will be required to be included in computing that officer's income from employment pursuant to paragraph 6(1)(b) of the Act.
If we can be of any further assistance, please do not hesitate to contact us.
Yours truly,
John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch
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