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This translation was prepared by Tax Interpretations Inc. The CRA did not issue this document in the language in which it now appears, and is not responsible for any errors in its translation that might impact a reader’s understanding of it or the position(s) taken therein. See also the general Disclaimer below.
Principal Issues: [TaxInterpretations translation] 1. A school board lends a computer to all its commissioners and reimburses them for the cost of Internet service. Are those items taxable benefits for commissioners who will use the computer and Internet service between 10% and 20% of the time in the performance of their employment duties?
2. If so, what is the value of the benefits they will have to include in their income?
Position: 1. Question of fact.
2. The value of the Internet service benefit would be equal to the amount by which the reimbursement exceeds the portion of the Internet service and modem costs that are directly related to their employment. With respect to the computer, we consider that it would be reasonable to include in the employee's income one-third of the value of the computer from which the portion equivalent to the employment-related use would be deducted.
Reasons: 1. If the loaned computer and home internet service are essential to the performance of the Commissioners' employment duties, we are of the view that no taxable benefit would result to the Commissioners despite the personal use they may make of it provided that the personal use does not give rise to additional costs for the employer. If, on the other hand, the use of a computer and/or Internet service at home is not essential to the duties of their employment, this would result in a taxable benefit to the employee under paragraph 6(1)(a).
2. The method of calculating the benefit of loaning a computer takes into account the percentage of personal use that the employee will make of it and the fact that the residual value of a computer after three years is negligible compared to its acquisition cost.
2006-017452
XXXXXXXXXX C. Lalonde
(613) 957-8953
June 5, 2007
Dear Madam,
Subject: Taxable benefit - computer and internet service
This is in response to your letter of February 16, 2006, in which you asked for our opinion on the value of benefits received by an employee in relation to the loan of a computer and reimbursement of the cost of Internet service by the employer. We regret the delay in responding to you.
Situation
A school board is planning to computerize the Council of Commissioners. As part of the project, the school board will loan computers worth $1,500 each to each commissioner and reimburse them for the monthly cost of a high-speed Internet link from their homes. The cost of this service will be approximately $600 per year. You estimate that between 10% and 20% of the Commissioners' computer time will be related to the performance of their duties. At the end of their term, commissioners will be required to return the computer to the school board and the school board will cease to reimburse them for the cost of the Internet service.
Unless otherwise indicated, all statutory references herein are to provisions of the Income Tax Act.
Question
You asked whether the computer and Internet service are taxable benefits to Commissioners and, if so, what calculation method should be used to determine the amount to be included in their employment income.
Our Comments
The Canada Revenue Agency does not generally provide written opinions on proposed transactions other than by way of advance ruling. Furthermore, it is the responsibility of the relevant Tax Services Office to determine whether completed transactions have received the appropriate tax treatment. We can, however, offer the following general comments which may not apply in full to the situation presented.
Paragraph 6(1)(a) provides, inter alia, that the value of any benefits received or enjoyed by a taxpayer in the year in respect of, in the course of, or by virtue of an office or employment shall be included in computing the taxpayer's income.
The provision of property or the reimbursement of an employee's expense by the employer may give rise to a taxable benefit to be included in the employee's income if it results in an economic advantage or benefit to the employee or if it relates to a personal expense of the employee. However, such a determination is a question of fact that can only be resolved after an examination of all the facts of a particular situation. In our view, in making such a determination, it is relevant to consider certain elements such as establishing the reason for providing the property and/or reimbursing the expenses.
In the situation you presented, we do not have sufficient information to establish whether or not those are taxable benefits. If the loaned computer and Internet service at home are essential for the performance of the Commissioners' employment duties, we are of the view that this would not result in a taxable benefit for the Commissioners despite the personal use they may make of it, provided that the personal use does not give rise to additional costs to the employer.
If, on the other hand, the use of a computer and/or Internet service at home is not required as part of their job duties and the above conditions are not satisfied, the amount to be included in the employee's income under paragraph 6(1)(a) would be equal to the amount by which the reimbursed amount exceeds the portion of the Internet access costs that are directly related to their employment.
With respect to the value of the benefit related to the loan of a computer, it must take into account the percentage of personal use that the employee will make of it and the fact that the residual value of the computer after three years will be negligible. We therefore believe that it would be reasonable to include in the employee's income one third of the value of the computer from which the portion equivalent to the employment-related use would be deducted.
We hope that these comments will be of assistance.
Best regards,
Louise J. Roy, CGA
Manager
Business and Partnerships Section
Business and Partnerships Division
Income Tax Rulings Directorate.
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