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: Whether provision of computer and Internet access to employees constitutes taxable benefit to employees; whether company can deduct the monthly lease payments required to provide computers to employees
Position: There is no taxable benefit to the employee participants in the program. The company can deduct the monthly lease costs.
Reasons: The computer equipment and Internet access is provided to the employees to enable them to become more computer literate. It falls within the guidelines for General Employment-Related Training set out in Technical News 13 and is consistent with a similar ruling given for a comparable program; the monthly lease costs are a regular business expense deductible in accordance with section 9.
XXXXXXXXXX 2000-003723
Attention: XXXXXXXXXX
XXXXXXXXXX, 2000
Dear XXXXXXXXXX:
Re: XXXXXXXXXX
Advance Income Tax Ruling
This is in reply to your letter dated XXXXXXXXXX requesting an advance income tax ruling on behalf of the above-noted taxpayer. We also acknowledge your letter dated XXXXXXXXXX and the information provided on XXXXXXXXXX.
We understand that, to the best of your knowledge and that of the taxpayers involved none of the issues involved in the ruling request:
(i) is in an earlier return of the taxpayer or a related person,
(ii) is being considered by a tax services office or taxation center in connection with a previously filed tax return of the taxpayer or a related person,
(iii) is under objection by the taxpayer or a related person,
(iv) is before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired, and
(v) is the subject of a ruling previously issued by the Directorate;
Unless otherwise stated, all references to a statute are to the Income Tax Act R.S.C. 1985 (5th Supp.), c.1, as amended, (the "Act") and all terms and conditions used herein that are defined in the Act have the meaning given in such definition unless otherwise indicated.
Our understanding of the facts, proposed transactions and the purpose of the proposed transactions is as follows:
Facts
1. XXXXXXXXXX ("XCo") is a corporation resident in Canada, a "taxable Canadian corporation" and a "public corporation" for the purposes of the Act.
2. Its head office is located in XXXXXXXXXX.
3. It is governed by the Canada Business Corporations Act.
4. It operates an XXXXXXXXXX business XXXXXXXXXX.
5. XXXXXXXXXX.
6. XCo, directly or through XXXXXXXXXX subsidiaries, employs approximately XXXXXXXXXX employees in approximately XXXXXXXXXX countries.
7. XXXXXXXXXX.
8. XXXXXXXXXX.
9. XXXXXXXXXX.
10. XXXXXXXXXX.
11. XXXXXXXXXX.
12. In addition, a large number of XCo's other employees (XXXXXXXXXX) do not work from a dedicated office workstation.
Proposed Transactions
13. XCo will launch a program (the "Program") whereby all its employees throughout the world will be provided with a personal computer ("PC") and printer (the PC and the printer hereinafter collectively referred to as a "Computer") for use in their homes. They will also be provided with access to the Internet and XCo's internal electronic communication network (generally referred to as an lntranet).
14. The Program will have two phases.
15. Under phase one, employees will be provided with a Computer and Internet access that will allow them to enhance their knowledge of PCs, electronic commerce and networks.
16. The second phase will comprise the enhancement of XCo's current infrastructure XXXXXXXXXX workforce, XXXXXXXXXX which will allow XCo to communicate with its employees.
17. XXXXXXXXXX.
18. It is anticipated that the Computers will be leased by XCo from a single supplier under a term of XXXXXXXXXX months and will be delivered directly to the employees at their homes.
19. XXXXXXXXXX.
20. XCo estimates that, for each employee who participates in the Program, its cost for the rental of the Computer and the Internet access will be approximately $XXXXXXXXXX (plus applicable taxes) per month.
21. If employees use their Computers for personal purposes, there will be no incremental cost to XCo.
22. It is anticipated that the Computers will bear an XCo identification in a form to be determined.
23. At the end of the leases, the employees will be required to return the Computers to the lessor and the Internet access will be terminated. XCo will then be free to either enter into a new Computer and Internet package with the same lessor or a new lessor, or to terminate the Program. The employees will have the option, from the lessor, of either buying the Computers at the then fair market value, entering into a new direct lease with the lessor, or walking away.
24. Enrollment in the Program will be on a voluntary basis XXXXXXXXXX to the employees (subject to a possible recovery charge for the administrative cost XXXXXXXXXX).
25. The Program is comparable with similar programs XXXXXXXXXX this year by a number of XXXXXXXXXX corporations, some of which are competitors of XCo.
26. XCo has adopted a corporate Internet policy for its employees. This policy imposes certain restrictions on the use that employees may make of the Internet. It is anticipated that certain elements of this policy will be incorporated into the Program and will apply to participating employees.
27. The Program is an initiative of XCo and does not result from any request from its employees.
28. XCo contemplates launching the Program XXXXXXXXXX.
Purpose of the Proposed Transactions
29. XCo strongly believes that it will greatly benefit from the Program from a business and commercial standpoint.
30. In light of the rapid expansion of electronic communication, the purpose of the program is to address the urgent need for XCo's employees to become fully PC literate and develop and maintain the electronic communication skills required in order to improve productivity, create more mobility in the workforce and overall reduce costs in an increasingly wired environment.
31. After considering several alternatives, XCo concluded that this proposal to provide a Computer and related Intranet/Internet access in the home will create a solid and flexible base to achieve the development of its employees business
technology skills on a user-friendly basis, enhance the dissemination of information across its network and provides opportunities to streamline its business processes.
32. More specifically, XCo expects to derive the following benefits from the Program.
(i) Corporation Communication:
XXXXXXXXXX The Intranet/Internet access will provide the employees with an efficient electronic link with their employer with respect to numerous work related duties and functions. In addition to setting up a widespread interactive communication network with its employees, XCo expects to achieve savings from reduced distribution/communication costs. The Intranet/Internet access will allow for speedy/detailed exchange with employees on ongoing business matters. It will also allow XCo to quickly address issues with its employees through fast turnaround exchanges (e.g. e-mail, general information, access to internal manuals, changes in policies, updates, surveys, etc.).
(ii) Office Automation:
Corporate mail, work files and personal files will be accessible in real time from home through the Intranet/Internet medium on a daily basis. Such an access to XCo's data banks will improve efficiency and productivity. The program will result in a more standardized and flexible working environment.
(iii)Workforce Mobility:
The Program will increase the mobility, flexibility and adaptability of the workforce of XCo within its various divisions or departments. It will become easier for XCo to transfer an employee from one division to another as all employees will have received the tools to familiarize themselves with computers and Intranet/Internet products. This should reduce the training costs that XCo has to incur when it transfers employees or when it hires new employees. Likewise, it will become easier for employees to apply for another job within XCo and to adapt to the requirements for any new job.
(iv) Qualified Workforce:
In today's competitive business environment, it is in XCo's interest to have the most qualified workforce possible. By giving its employees the tools to develop or increase their computer literacy, XCo will be in a better position to achieve this goal. Furthermore, it will not be put at a disadvantage vis-à-vis its competitors who have already announced similar programs.
(v) Department Specific Benefits:
Intranet/Internet access will provide each individual department with tools to better achieve their goals of productivity improvement. For instance, the Human Resources Department's employee training program will be improved through on-line training and qualification testing. Furthermore, employees will be provided with remote access to their personal files for information updates. The remote access will also permit XCo to address business and job related matters with its employees in a more expeditious and customized way. XXXXXXXXXX.
The various operational departments will also benefit from the implementation of the Program which will generate instantaneous related operational information aimed at improving the work processes and the quality of goods and services offered to the internal customers.
In conclusion, each individual department will benefit from better trained/informed employees, motivated to develop and maintain their competency in the changing world of electronic communication.
RULING GIVEN
Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts, proposed transactions, and purpose of the proposed transactions and provided further that the proposed transactions are carried out as described above, our rulings are as follows:
We confirm that, in respect of the employees of XCo who participate in the Program, no amount will be included in their income pursuant to subsection 5(1) or section 6 of the Act. We also confirm that XCo will be entitled to deduct the monthly payments (described in paragraph 20 above) required under the Program pursuant to section 9 of the Act.
The ruling is given subject to the limitations and qualifications set out in Information Circular 70-6R3 dated December 30, 1996, and is binding provided that XCo commences the Program by XXXXXXXXXX.
The ruling is based on the Act in its present form and does not take into account any proposed amendments to the Act which, if enacted, could have an effect on the ruling provided herein.
Yours truly
XXXXXXXXXX
for Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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