25 June 1999 Internal T.I. 9909727 - MEALS AND BENEFITS

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.

Principal Issues: A hotel provides employees with free meals and beverages. The issue is the determination of the taxable benefits.

Position: The benefit should be determined on the basis of the cost, preparation, and service in respect of the food and beverages.

Reasons: The privilege concept discussed in paragraph 2 of IT-470R is considered to be applicable with the result that the benefits should be determined on the basis of paragraph 28 of

IT-470R.

	XXXXXXXXXX  Tax Services Office 	HEADQUARTERS
	XXXXXXXXXX 	M. Eisner
	Business Audit XXXXXXXXXX 	(613) 957-213	

990972

Meals Provided to Employees and Taxable Benefits

This is in reply to your facsimile of April 12, 1999, concerning the above-noted subject.

In the circumstances, hotel employees who work at least five hours in a shift, receive a free meal from their employer during their break and free beverages during the shift. Employees, who work a shift of 4 hours or less, only receive free beverages. The employer considers an employee to have received a taxable benefit of 25¢ an hour for each hour the employee works.

With respect to this situation, you have raised a number of concerns. One concern is whether the benefit should be determined on the basis of the cost of the meals and beverages consumed, or on the basis of the fair market value of the meals and beverages, and whether 25¢ an hour is a reasonable charge. A second concern is whether there should be a taxable benefit if an employee decides to bring his or her lunch to work rather than consume a free meal that would be provided by the employer. Your last concern is whether the employees are considered to have received a taxable benefit when beverages are consumed (but not a meal) and, if there are taxable benefits, whether they should be considered to be included in the 25¢ an hour, determined on the basis of cost or on the basis of fair market value.

Our Comments

As you are aware, the Department’s general position on employment benefits is set out in Interpretation Bulletin IT-470R “Employees Fringe Benefits.”

With respect to your concerns, we regard paragraphs 2, 4, and 28 of IT-470R to be relevant. To the extent that meals can give rise to a taxable benefit, paragraph 2 makes a distinction between taxable benefits and non-taxable privileges and indicates that there may well be a point beyond which the “privilege” concept is no longer valid, i.e., the advantage to the employee is in fact a form of extra remuneration. Paragraph 4, under “Part A Amounts To Be Included In Income” (i.e., taxable benefits) and paragraph 28 under “Part B Amounts Not To Be Included In Income” (i.e., the privilege concept is considered relevant), relate specifically to meals provided by an employer. Paragraph 4 indicates that paragraph 6(1)(a) of the Income Tax Act (the “Act”) refers specifically to board as an employment benefit. This includes board regularly furnished as a perquisite of the employment, as is common for hotel employees. Where subsidized board is provided to an employee, the value of the benefit for “board” is determined on the basis described for subsidized meals in paragraph 28.

Paragraph 28 indicates that subsidized meals provided to employees will not be considered to confer a taxable benefit provided the employee is required to pay a reasonable charge. A reasonable charge is generally defined as one that covers the cost of food, its preparation and service. Where less than a reasonable charge is paid, the value of the benefit is that cost less the amount paid by the employee.

With respect to your first concern, the benefits should be determined on the basis of the comments in paragraph 28 of IT-470R. Whether the use of a certain per hour rate for all employees produces appropriate results will have to be determined with reference to the bulletin comments. Since the cost of food can vary, it is likely necessary to do a calculation of the average cost of meals that employees consume. Since the determination of the value of benefits (including the consideration of the use of a method that is based on an hourly rate) is a matter that is best determined by tax services offices, you may wish to consult with your Trust Accounts Division in that regard.

In the case of your second concern, it is our view that if an employee consumes his own lunch rather than being provided with a meal by his or her employer, the employee should not be considered to have received a taxable benefit in respect of a meal.

In the case of your last concern, it is our view that an employee is considered to have received a taxable benefit determined on the basis of the employer’s cost when free beverages are consumed outside the meal period.

If you require further technical assistance, we would be pleased to provide our views.

For your information, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the legislation Access Database (LAD) on the Department’s mainframe computer. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the LAD version or they may request a copy severed using the Privacy Act criteria which does not remove client identity. Requests for this latter version should be made by you to Jackie Page at (819) 994-2898. The severed copy will be sent to you for delivery to the client.

John Oulton, CA
Manager
Business, Property & Employment Section III
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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