Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.
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TO:
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XXXXX
XXXXX
XXXXX
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FROM:
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Douglas Wood, CGA
Rulings Officer
General Operations Unit
General Operations & Border Issues Division
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Subject:
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Taxable Benefits and the GST/HST
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This memorandum is in response to your e-mail messages XXXXX relating to taxable benefits and the GST/HST. I have been asked to respond to your inquiry.
Background Information:
You have requested that we review the comments you propose to provide in response to the incoming e-mail message XXXXX from XXXXX. In the document attached to your e-mail, there is a segment that is an excerpt from the Employers' Guide - Taxable Benefits (T4130).
It is our understanding that the examples provided in the attached document, although pertaining to taxable benefits, are not excerpts from the guide. The segment from the guide reads, in part, as follows:
"The Employers' Guide - Taxable Benefits (T4130) (pg. 31) states that the amount of GST/HST the employer is considered to have collected on a taxable benefit is the total of:
(a) the amount reported on the T4 or T4A slip for the benefit;
and
(b) if the taxable benefit is for a standby charge or operating cost of an automobile, the amount, if any, that the employee or employee's relative reimbursed you for that benefit. Note: (When an employee or an employee's relative has reimbursed an amount equal to the entire taxable benefit for a standby charge or operating cost of an automobile and, as a result, no benefit is reported on the T4 slip, the value of the benefit for GST/HST purposes is equal to the amount of the reimbursement.)
However, when an employee or an employee's relative has reimbursed an amount for a taxable benefit other than for a standby charge or operating cost of an automobile, the employer is considered to have collected an amount equal to 7/107 of GST or 15/115 of HST on this reimbursement)."
Question 1:
Point a) above states "the amount reported on the T4 or T4A slip for the benefit". Is this amount the net amount or the gross amount of the taxable benefit (amount before any reimbursements or the amount after all reimbursements from the employee to the employer)?
Opinion presented in the attachment to the e-mail:
"The amount reported on the T4 or T4A slip, is the amount without the reimbursement. As per Chapter 1 of the T4130 guide, the taxable benefit does not include the reimbursement."
Comments from the Excise & GST/HST Rulings Directorate:
We have consulted with the Income Tax Rulings Directorate on this issue, and have confirmed that for income tax purposes, the amount reported on the T4 or T4A slip should be the amount of the benefit less (or minus) the amount of the reimbursement. Section 1.2 of the Employers' Guide - Taxable Benefits (T4130), entitled "Automobile benefits" states that the benefit for an automobile you provide for the year is generally the total of the following amounts:
• a standby charge for the year; and
• an operating cost benefit for the year;
minus
• any reimbursements employees make in the year for benefits you otherwise include in their income for the standby charge or the operating costs.
For GST/HST purposes, the calculation under subsection 173(1) of the ETA is based upon the total of the benefit amount for income tax purposes (i.e., the amount reported on the T4 or T4A) plus all reimbursements relating to the use or operation of an automobile. That is to say, we take the amount of the benefit reported in the employee's income, and add the amount that the employee reimbursed to the employer with respect to the operation or use of an automobile, and multiply that amount by either the appropriate prescribed percentage (i.e., 5% or 11%) (These prescribed percentages are used for purposes of determining the amount of tax that the employer will be deemed to have collected with respect to operating cost benefits.), or the appropriate tax fraction (i.e., 6/106ths or 14/114ths). (These tax fractions are used for purposes of determining the amount of tax that the employer will be considered to have collected with respect to the standby charge.).
Please note that the Income Tax Rulings Directorate is responsible for interpretations relating to the ITA. As such, if you have further questions relating to taxable benefit calculations from an income tax perspective, we suggest that you consult with the Income Tax Rulings Directorate.
Question 2:
Point b) above states "if the taxable benefit is for a standby charge or operating cost of an automobile, the amount, if any, that the employee or employee's relative reimbursed you for that benefit", should be added to the amount in a) above.
Does this take into consideration both types of reimbursements as defined by the ITA? The ITA defines and differentiates the standby charge reimbursement from the operating cost reimbursement. Section 6(1)(e)(ii) of the ITA defines the standby charge reimbursement and section 6(1)(k)(iii)(B) of the ITA defines the operating cost reimbursement. Do we add both types of reimbursements to the amount computed in a) above? Please clarify.
Your comments with respect to Question 2:
Yes we have to add both types of reimbursements to the amount computed in a) above.
Comments from the Excise & GST/HST Rulings Directorate:
Yes. Reimbursements with respect to both standby charges and operating cost benefits are to be added to the benefit amount (i.e., the amount identified on the employee's T4 or T4A) for GST/HST purposes. Pursuant to subparagraph 173(1)(d)(v) of the ETA, reimbursements by the employee to the employer related to the use or operation of an automobile have to be added to the benefit amount that is included in the employee's income for income tax purposes.
Please note that it would be more appropriate to say subparagraph 6(1)(e)(ii) of the ITA, rather than section 6(1)(e)(ii) of the ITA. Furthermore, it would be more appropriate to say clause 6(1)(k)(iii)(B) of the ITA, rather than section 6(1)(k)(iii)(B) of the ITA.
Question 3:
Point b) above goes on to state "when an employee or an employee's relative has reimbursed an amount for a taxable benefit other than for a standby charge or operating cost of an automobile, the employer is considered to have collected an amount equal to 7/107 of GST or 15/115 of HST on this reimbursement". Does this mean that any reimbursement from an employee to the employer should have GST/HST calculated? Would it make a difference if the benefit has GST/HST applicable to it or not?
Your comments with respect to Question 3:
It does not make a difference to the taxable benefit that has to be reported on the T4 or T4A slips. The difference is for the employer to calculate the GST/HST that he has to remit to the CRA.
Comments from the Excise & GST/HST Rulings Directorate:
Where the supply made available to the employee is zero-rated or exempt for GST/HST purposes, the employer will not be required to account for any amount with respect to the reimbursement in their net tax calculation. That is to say, the employer would only be required to account for tax with respect to a reimbursement in those circumstances where the reimbursement related to a supply is taxable at either 7% or 15%.
Additional Examples:
Below are a few examples dealing with taxable benefits and reimbursements, and you have requested our views in regards to these examples.
Example 1:
As a corporation registered for the GST, the employer buys a vehicle that is used more than 50% in commercial activities and is made available to the employee during 2003. The last establishment where the employee ordinarily reported in the year for the corporation was located in Ontario. XXXXX calculates a taxable benefit (including GST) of $4,800 ($20,000 vehicle multiplied by 2% multiplied by 12 months) on the standby charge and an operating cost benefit of $595 (3,500 kilometers at 17 cents). The employee reimbursed the employer $500 for the automobile operating costs within 45 days following the end of 2003. The corporation claimed an ITC for the purchase of the automobile and also on the operating costs.
GST considered to have been collected:
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• on the standby charge ($4,800 x 6/106) =
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$ 271.70 |
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• on the operating cost ($595 x 5%) =
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$ 29.75 |
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• on the operating cost reimbursement ($500 x 5%) =
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$ 25.00 |
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• Total GST
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$ 326.45
======= |
Your summarized comments with respect to Example 1:
You presented the view that the example looked fine.
Comments from Excise & GST/HST Rulings with respect to Example 1
In our view the GST that the registrant will be deemed to have collected should be calculated as follows:
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• on the standby charge ($4,800 x 6/106) =
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$ 271.70 |
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• on the operating cost ($595 - $500) x 5% =
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$ 4.75 |
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• on the operating cost reimbursement ($500 x 5%) =
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$ 25.00 |
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• Total GST
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$ 301.45
====== |
Example 2:
As a corporation registered for the HST, the employer buys a vehicle that is used more than 50% in commercial activities and is made available to the employee during 2003. The last establishment where the employee ordinarily reported in the year for the corporation was located in Nova Scotia. The XXXXX calculates a taxable benefit (including HST) of $6,000 ($25,000 vehicle multiplied by 2% multiplied by 12 months) on the standby charge and an operating cost benefit of $340 (2,000 kilometers at 17 cents). The employee reimbursed the employer $1,000 for standby charges and $600 for the automobile operating costs within 45 days following the end of 2003. The corporation claimed an ITC for the tax payable on the purchase of the automobile and also on the operating costs.
HST considered to have been collected:
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• on the standby charge ($6,000 x 14/114) =
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$736.84 |
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• on the operating cost ($340 x 11%) =
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$ 37.40 |
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• on the operating cost reimbursement ($600 x 11%) =
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$ 66.00 |
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• on the standby charge reimbursement ($1,000 x 11%) =
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$110.00 |
The tax fraction of 14/114ths should be used here to calculate the tax that the employer will be deemed to have collected with respect to the standby charge reimbursement, rather than 11%.
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• Total HST
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$950.24
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Your summarized comments with respect to Example 2:
You expressed uncertainty about the amount calculated on the standby charge reimbursement. You would like to know if the amount should be calculated as $1,000 x 14/114?
Comments from the Excise & GST/HST Rulings Directorate with respect to Example 2:
In our view the HST that the registrant will be deemed to have collected should be calculated as follows:
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• on the standby charge ($6,000 - $1,000) x 14/114 =
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$614.04 |
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• on the standby charge reimbursement ($1,000 x 14/114) =
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$122.81 |
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• on the operating cost ($340 - 600) x 11% =
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$ 0.00 |
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• on the operating cost reimbursement ($600 x 11%) =
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$ 66.00 |
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• Total HST
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$802.85
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As an observation, the amount reimbursed to the employer with respect to the operating costs exceeds the amount identified as being the operating cost benefit. Since the last establishment where the employee ordinarily reported in the year for the corporation was located in Nova Scotia, which is a participating province, the prescribed rate of 11% is to be used only in connection with operating cost benefit and/or operating cost reimbursements. In the case at hand, the tax fraction 14/114ths should be used for purposes of calculating the amount of tax the employer will be considered to have collected with respect to the standby charge, and the standby charge reimbursement.
Example 3:
As a corporation registered for the GST, the employer buys a vehicle that is used more than 50% in commercial activities and is made available to the employee during 2003. The last establishment where the employee ordinarily reported in the year for the corporation was located in Ontario. The XXXXX calculates a taxable benefit (including GST) of $10,800 ($45,000 vehicle multiplied by 2% multiplied by 12 months) on the standby charge and an operating cost benefit of $3,570 (21,000 kilometers at 17 cents). The employee reimbursed the employer $10,000 for standby charges and $4,370 for the automobile operating costs within 45 days following the end of 2003. The corporation claimed an ITC for the purchase of the automobile and also on the operating costs.
GST considered to have been collected:
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• on the standby charge ($10,800 x 6/106) =
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$ 611.32 |
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• on the operating cost ($3,570 x 5%) =
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$ 178.50 |
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• on the operating cost reimbursement ($4,370 x 5%) =
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$ 0 |
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• on the standby charge reimbursement ($10,000 x 5%) =
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$ 0 |
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• Total GST
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$ 789.82
====== |
Your comments with respect to Example 3:
You expressed the opinion that the operating cost reimbursement should be calculated as:
$4,370 x 5% = $218.50. You also expressed the opinion that the GST calculation with respect to the standby charge reimbursement should be calculated as $10,000 x 6/106 = $566.04.
Comments from the Excise & GST/HST Rulings Directorate with respect to Example 3:
In our view the GST that the registrant will be deemed to have collected should be calculated as follows:
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• on the standby charge ($10,800 - $10,000) x 6/106) =
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$ 45.28 |
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• on the standby charge reimbursement ($10,000 x 6/106) =
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$ 566.04 |
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• on the operating cost ($3,570 - $4,370) x 5% =
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$ 0.00 |
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• on the operating cost reimbursement ($4,370 x 5%) =
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$ 218.50 |
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• Total GST
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$ 829.82
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As an observation, the reimbursement in the amount of $4,370 paid by the employee to the employer with respect to the operating costs exceeds the amount identified as being the operating cost benefit in the example.
Example 4:
As a corporation registered for GST, the employer buys a watch for $10,000 (including GST and PST) for any employee reaching 25 years of service. The employer buys a watch for John Doe for $12,356 (including GST and PST) to mark the employee's 25 years of service. The employee reimbursed the employer $2,356 for the excess cost of having his family name and extras put on the watch. The corporation could not claim an ITC because they bought the watch for the employee's exclusive personal use and enjoyment. The XXXXX calculates a taxable benefit and includes $10,000 in box 14 and under code 40 on the employee's T4 slip.
GST considered to have been collected:
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• on the gift and award ($10,000 x 0) =
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$ 0 |
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• on the reimbursement ($2,356 x 7/107) =
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$ 154.13 |
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$ 154.13
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Your summarized comments with respect to Example 4:
If the employer cannot claim an ITC, the employer is not considered to have collected the GST/HST so in your opinion, there should not be any amount to calculate on the reimbursement. You would like us to confirm that the employer will not have to remit any GST/HST on the benefit?
Comments from the Excise & GST/HST Rulings Directorate with respect to Example 4:
The reason the employer will not be considered to have collected tax with respect to the taxable benefit is because the situation at hand falls under subparagraph 173(1)(d)(i) of the ETA. The reason this exception applies is because an input tax credit would be denied with respect to the tax paid or payable in relation to the watch, pursuant to paragraph 170(1)(b) of the ETA.
No similar exception would apply with respect to the reimbursement made by the employee to the employer with respect to the watch. As such, we would conclude that the registrant employer would be required to account for tax collectible in the amount of $154.13 with respect to the reimbursement in its net tax calculation, in the reporting period in which the reimbursement was made to the employer.
Example 5:
As a corporation registered for GST, the employer pays for a golf club membership of $5,000 (including GST and PST) for any sales employee with sales greater than $250,000. The membership is purchased by the employer for the employee to provide dining, recreational, or sporting facilities for large clientele. The employer pays a club membership for Jane Doe for $7,500 (including GST and PST) for her to entertain various large clients. The employee reimbursed the employer $2,500 for the excess cost of having her yearly tab paid for by the corporation. The corporation could not claim an ITC for the club membership fees or dues. The XXXXX calculates a taxable benefit and includes $5,000 in box 14 and under code 40 on the employee's T4 slip.GST considered to have been collected:
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• on the club membership dues or fees ($5,000 x 0) =
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$ 0 |
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• on the reimbursement ($2,500 x 7/107) =
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$ 163.55 |
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$ 163.55
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Your summarized comments with respect to Example 5:
You presented the view that this situation should be treated the same way as in example 4 above.
Comments from Excise and GST/HST Rulings with respect to Example 5:
The employer will not be deemed to have collected tax with respect to the taxable benefit because the situation at hand falls under the scope of subparagraph 173(1)(d)(i) of the ETA. The reason this particular exception applies is because an input tax credit would be denied with respect to the tax paid or payable in relation club membership pursuant to paragraph 170(1)(a) of the ETA.
No similar exception applies with respect to the reimbursement made by the employee to the employer with respect to the golf membership. As such, the general imposition rules under the ETA would apply, and the registrant employer would be required to account for the tax collectible with respect to the membership reimbursement in its net tax calculation, in the reporting period in which the reimbursement was made to the employer. We agree that the tax collectible with respect to the amount reimbursed by the employee to the employer relating to the club membership would be equal to $163.55.
Thank you for consulting with the General Operations Unit in regards to this matter. Should you have any further GST/HST questions, please feel free to contact me at (613) 954-9699.
| c.c.: |
John Sitka
Owen Newell
Randy Hewlett
Terry Young
Douglas Wood |
2004/08/11 — RITS 51963 — Supply of Recreational Vehicles on Behalf of Other Persons
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