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: 1. In the particular situation, whether an employer-provided computer and internet service results in a taxable benefit to employees?
Position: Not in this situation.
Reasons: The employer is providing this computer and internet service to employees. This was not part of a negotiated wage settlement. The employer's industry is moving XXXXXXXXXX to a consumer-oriented industry. As a consumer-oriented industry, reliance will be placed on the internet and e-commerce at all levels of the company. To accomplish this transformation, employees must become computer literate in the near term. Technical News No. 13, reflects the Agency's position on employer provided education. In this situation, the provision of the internet and computer falls clearly within the Agency's comments on General-Employment Related Training. Provision of the internet and computer will also link employees closer to customers and will open a new communication channel to employees.
XXXXXXXXXX 2000-002810
Attention: XXXXXXXXXX
XXXXXXXXXX, 2000
Dear Sir:
Re: XXXXXXXXXX
Advance Income Tax Ruling regarding XXXXXXXXXX
This is in reply to your letters of XXXXXXXXXX, requesting an advance income tax ruling on behalf of the above-noted taxpayer. We also acknowledge your further letters of XXXXXXXXXX, and our meeting of XXXXXXXXXX.
You advised us that to the best of your knowledge and the knowledge of the entities listed in paragraph 1 below, none of the issues involved in this ruling are being considered by a tax services office or taxation centre in connection with a tax return already filed and none of the issues is under objection or appeal.
You state that the facts, proposed transactions and the purpose of the proposed transactions are as follows:
Facts
1. "Subco", is collectively the following corporations which are resident in Canada and are controlled, directly or indirectly, by XXXXXXXXXX ("Parentco"), a corporation resident in the United States: XXXXXXXXXX.
2. Parentco employs directly and through its subsidiaries approximately XXXXXXXXXX people worldwide, approximately XXXXXXXXXX of which are employed by Subco.
3. Parentco is a XXXXXXXXXX.
4. Internet and related technology has become essential to conducting business in the 21st century. Electronic commerce and its medium, the internet, are having a profound effect on the way XXXXXXXXXX do business. Furthermore, Parentco is in the process of transforming itself XXXXXXXXXX to a consumer-oriented company striving to satisfy customer needs. Subco is also in the process of this same transformation. To succeed in this transformation, each and every one of the employees of Parentco and Subco must become computer-literate and develop their computer skills in the near-term.
5. The Canada Customs and Revenue Agency's position on employer-provided education is provided in Income Tax Technical News No. 13, dated May 7, 1998 as follows: "The consultations have shown that in our current environment, with rapidly changing technology and a quickly expanding global market, it is necessary for most individuals to constantly upgrade their knowledge and skills in order to remain productive. Employers consider it to be an absolute necessity to encourage and support training of their employees at all organizational levels.... When the training is taken primarily for the benefit of the employer there is no taxable benefit...."
6. Subco has stated that it is the primary beneficiary of the provision to its employees of internet service and computers as discussed below in the proposed transactions. Subco submits that as reflected in ITTN No.13, general employment-related training which allows employees to adapt and develop skills in relation to changing technology and global markets is primarily for the benefit of the employer. Subco feels strongly that its proposed program falls within these comments in ITTN No. 13 and should not result in a taxable benefit to its employees.
Proposed Transactions
7. As a first step in achieving its goal of company-wide computer literacy and in order to accelerate the technological capabilities of its employees, develop their computer skills, link them closer to the customers and open a new communication channel with its employees, Parentco is planning to offer to each of the approximately XXXXXXXXXX employees a computer, a printer and unlimited internet access.
8. Parentco proposes to establish a program, to be known as the "XXXXXXXXXX" (the "Program"), pursuant to which all of the employees of Parentco and Subco will be offered a computer, printer and unlimited internet access.
9. All active full-time employees (XXXXXXXXXX) of Parentco and Subco, (the "Eligible Employees") will be given the opportunity to participate in the Program. XXXXXXXXXX.
10. The base computer will have a Celeron chip that runs at 500 Mhz, a 64 MB space RAM and 4.3 GB hard disk for storage. It will come with a CD-ROM, a 15-inch monitor, speakers and a modem. Subco's Eligible Employees at their expense may choose to upgrade the equipment and purchase additional peripheral equipment. The base equipment offered may be modified as technology advances and the availability of such equipment is depleted. Any new equipment offered will not be substantively superior to the aforesaid base equipment.
11. XXXXXXXXXX.
12. The Subco Membership Agreement will provide that membership in the Subco Program is for a term of XXXXXXXXXX months and that an employee's membership may not be transferred.
13. Subco Participants will be required to make a monthly payment through payroll deductions of XXXXXXXXXX dollars throughout the term of the Subco Membership Agreement. Alternatively, a Subco Participant may make a lump sum payment for the total amount under the Subco Membership Agreement. This payment was reflected in the XXXXXXXXXX (the "Payment Agreement"), a copy of which was submitted with the ruling request. This nominal fee is intended to cover Subco Participants' incidental personal use.
14. It is assumed that each Subco Participant will be able to connect with a local phone number. A Subco Participant must provide access to a phone line.
15. Each time a Participant, including a Subco Participant, connects to the internet, they will be presented with a customized "XXXXXXXXXX" screen only available to Participants. XXXXXXXXXX.
16. Each Participant will receive XXXXXXXXXX e-mail addresses XXXXXXXXXX. Additional addresses may be purchased at an additional cost.
17. XXXXXXXXXX.
18. All participants will have unlimited access to the internet, subject to the "XXXXXXXXXX" (the "Policy"). The Policy was submitted with the ruling request and Subco's Policy will not be substantively different. The Policy prohibits, inter alia, internet use for commercial purposes which are not Subco-related. Subject to the Policy, Subco will not track individual employees' activities on the internet. Subco Participants will be encouraged to "surf the net" in order to gain internet savvy and gain a broader understanding of their customer base. In addition, Subco Participants will have links to Subco- and Parentco-related sites which will enable them to communicate with management and with each other, and to learn more about Subco and Parentco. In addition, this medium will provide future opportunities for employee education programs.
19. XXXXXXXXXX, Subco Participants who leave the company during the XXXXXXXXXX period must keep the hardware and software and complete the pro rata payments for the full cost of the computer and internet access fees. XXXXXXXXXX.
20. XXXXXXXXXX.
21. Subco Participants are required to keep physical possession of the computer equipment throughout the XXXXXXXXXX term of the Subco Program. Neither the computer nor the internet access is transferable. XXXXXXXXXX.
22. After the XXXXXXXXXX period, a Subco Participant will have unrestricted ownership of the computer.
23. It is expected that the Subco Participants will use the computer and internet service to develop their computer skills and become computer literate so that they can adapt to the changing technology in their workplace.
Purpose of the Proposed Transactions
24. The purpose of the Subco Program is to increase Subco's competitive advantage in the XXXXXXXXXX by (i) enhancing the technological capabilities of its employees, (ii) linking its employees closer with Subco's customers, and (iii) opening a new communication channel with its employees.
25. XXXXXXXXXX, by connecting Subco's employees to the XXXXXXXXXX public via the internet so that they can: (1) partake in chat room discussions with customers; (2) consider suggestions from customers as to ways to improve their XXXXXXXXXX, learn about any problems that customers may be experiencing with respect to XXXXXXXXXX; (3) address customers' and potential customers' questions and concerns; and, (4) XXXXXXXXXX.
26. XXXXXXXXXX it would be inappropriate to exclude any segment of the workforce from participating in a program dedicated to making employees internet-literate, XXXXXXXXXX.
27. The Subco Program is the first step in the process of developing a workforce at Subco that will be capable of using the internet in the course of their employment activities.
28. Connecting as many of Subco's employees as possible to the internet will also generate cost-savings for Subco in terms of company-wide communications, as well as effect a marked improvement in Subco's ability to communicate with employees.
29. Subco further submits that the Subco Program is general employment-related training intended to allow employees to adapt and develop skills in relation to changing technology.
Ruling
Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts, proposed transactions and the purpose of the proposed transactions, and provided that the proposed transactions are completed in the manner described above, and further provided that there are no other transactions which may be relevant to the ruling requested, our ruling is as follows:
We confirm that in respect of a Subco Participant in the Subco Program, no amount will be included in the income of the Subco Participant pursuant to subsection 5(1) or section 6 of the Income Tax Act (the "Act").
This ruling is given subject to the limitations and qualifications set out in Information Circular 70-6R3 issued by the Canada Customs and Revenue Agency on December 30, 1996, and is binding provided that the Subco Program commences by XXXXXXXXXX.
The ruling is based on the Act in its present form and does not take in to account any proposed amendments to the Act which, if enacted, could have an effect on the ruling provided herein.
All documentation provided with the ruling request were representative of Parentco's agreements as draft documentation for Subco's agreements were not available. The above ruling is based on the versions of Parentco's agreements described above that were submitted with the ruling request. Any substantive differences between these versions and the final versions of Subco's agreements, as amended from time to time, could invalidate the ruling.
Yours truly,
XXXXXXXXXX
for Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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