Principal Issues: Whether a taxable benefit would arise where an employer offers its employees a credit card with a discounted interest rate, relative to that ordinarily charged to non-employee cardholders?
Position: Where the credit card is a loan for purposes of subsection 80.4(1), any benefit so determined by virtue of this provision is included in income under subsection 6(9). Where the provisions of subsection 80.4(1) of the Act do not apply, the value of a benefit received by an employee in respect of a reduced interest rate may be assessed pursuant to paragraph 6(1)(a) of the Act.
Reasons: Revolving credit instruments such as credit cards constitute loans for purposes of subsection 15(2) and by extension, appear to be loans for purposes of subsection 80.4(1). It is always a question of fact, however, whether such loans have been received because of an office or employment. Where the provisions of subsection 80.4(1) do not have application, a benefit may be included under paragraph 6(1)(a).
XXXXXXXXXX
2012-046350
T. Baltkois
September 6, 2013
Dear XXXXXXXXXX:
Re: Employee Taxable Benefits
We are writing in response to your email of September 21, 2012, in which you requested our comments as to whether a taxable benefit would arise where an employer in the financial services industry offers its employees a credit card with a discounted interest rate, relative to that ordinarily charged to non-employee cardholders.
In the situation described, the discounted interest rate made available to employees and applied to any unpaid credit card balance is expected to be higher than both the interest rate prescribed in section 4301 of the Income Tax Regulations (Regulations), and the interest rate applicable for a commercial loan obtained through a bank.
This technical interpretation provides general comments to assist you in determining the income tax treatment of your particular fact situation. The income tax treatment of specific transactions will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted as set out in Information Circular IC 70-6R5, Advance Income Tax Rulings.
Our Comments
Subsection 80.4(1) of the Income Tax Act (Act) generally provides that where an individual receives a loan or otherwise incurs a debt because of or as a consequence of a previous, a current, or an intended office or employment, such an individual is deemed to have received a benefit from employment. In our view, revolving credit instruments such as credit cards constitute loans for purposes of subsection 80.4(1) of the Act.
Subsection 80.4(1.1) of the Act deems a loan or debt to have been received or incurred because of an individual's office or employment if it is reasonable to conclude that the terms of the loan or debt (for example, the rate of interest charged, the payment frequency, the payment amount, the repayment period, etc.) would have been different or the loan or debt would not have been received or incurred, but for the individual's office or employment (previous, current, or intended).
If the loan is received or is deemed to have been received or incurred because of an individual's employment, subsection 80.4(1) of the Act would apply, and a benefit will be deemed to have been received by the employee. Generally, no amount will arise under subsection 80.4(1) where the interest rate on the loan is higher than the interest rate prescribed in section 4301 of the Regulations. Paragraph 6(1)(a) of the Act will not apply if subsection 80.4(1) of the Act deems a benefit to have been received, even if the amount of the benefit is nil.
Where a particular loan is not received or is not deemed under subsection 80.4(1.1) of the Act to have been received because of an individual's employment, subsection 80.4(1) of the Act would not apply to deem a benefit to have been received. In such situations, there may be a taxable benefit under paragraph 6(1)(a) of the Act if it is determined that the reduced interest rate was received in respect of, in the course of, or by virtue of an office or employment. The courts have determined that the words "in respect of" have the widest meaning possible and that there only needs to be a connection to employment.
If there is a taxable benefit under paragraph 6(1)(a) of the Act, the benefit would generally be calculated using the interest rate differential between credit cards issued to employees and those provided to the general public (i.e. the FMV interest rate). The fact that a reduced interest rate was offered to all employees would not, in and of itself, make any resulting benefit non-taxable.
We trust these comments will be of assistance to you.
Yours truly,
Nerill Thomas-Wilkinson, CPA, CA
Manager
for Director
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
