2000 Ruling 2000-0053563 - EMPLOYER-PROVIDED COMPUTERS

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 2000-005356

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 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 and a "taxable Canadian corporation" for the purposes of the Income Tax Act. XCo has two Canadian subsidiaries, XXXXXXXXXX ("Sub1") and XXXXXXXXXX ("Sub2").

2. XCo's head office is located in XXXXXXXXXX.

3. XXXXXXXXXX.

4. XCo designs, develops, manufactures and sells XXXXXXXXXX.

5. XCo, directly or through its subsidiaries, employs approximately XXXXXXXXXX employees in over XXXXXXXXXX countries.

Proposed Program

6. XCo will launch a program (the "Program") whereby its employees 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).

7. The Program will have two phases.

8. Under phase one, employees who enroll in the Program will be provided with the Computer and Internet access that will allow them to enhance their knowledge of PCs, electronic commerce and networks. Employees will gain access to corporate email during the XXXXXXXXXX.

9. The second phase will comprise the enhancement of XCo's current infrastructure which cannot presently support XCo's considerable workforce, and the building of the required Intranet links which will allow employees access to their on-site computer files from their home computer. These Extranet features will be made available as soon as they are developed in the employee portal.

10. It is anticipated that the Computers will be leased by XCo from a single supplier under a term of not more than XXXXXXXXXX months and will be delivered directly to the employees at their homes.

11. XCo estimates that, for each employee who participates in the Program, the total cost for the rental of the Computer and the Internet access will be approximately $XXXXXXXXXX plus applicable taxes per month. Of this amount, XCo will pay a proportion to be determined (estimated at being between XXXXXXXXXX% and XXXXXXXXXX%) and the employee will pay the balance, by way of source deduction.

12. XCo will also support the administrative cost of running the Program.

13. If employees use their Computers for personal purposes, there will be no incremental cost to XCo.

14. It is anticipated that the Computers will bear an XCo identification in a form to be determined.

15. During the course of the lease, at certain specified times, the employees will have the option from the lessor of buying the Computers at their residual value.

16. 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.

17. Enrollment in the Program will be on a voluntary basis, during specific enrollment periods. XCo intends to begin the first enrollment period on XXXXXXXXXX. The program will be available to all employees of XCo, and all employees of Sub2 that are stationed permanently in Canada. Sub1 has no employees, but the program will be available to any XCo employees seconded to sub1.

18. The Program is comparable with similar programs launched earlier this year by a number of major multinational corporations.

19. The Program is an initiative of XCo and does not result from any request from its employees.

Purpose of the Program

20. 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.

21. After considering several alternatives, XCo concluded that this proposal to provide a Computer and related Intranet/Extranet/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.

22. XCo strongly believes that it will greatly benefit from the Program from a business and commercial standpoint.

23. More specifically, XCo expects to derive the following benefits from the Program.

(i) Corporation Communication:

XCo is in a labour-intensive business. The lntranet/Extranet/lnternet 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 lntranet/Extranet/lnternet access will allow for speedy/detailed exchange with employees on an 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 lntranet/Extranet/lnternet 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) Work/Personal Life Balance:

XCo believes that it will benefit from increased productivity and enhanced employee retainment if it establishes means by which its employees can more easily balance work requirements with family and other personal needs. Access to e-mail and other computer-based material, as well as all Internet-accessible data, will give the opportunity of more flexible hours to many XCo employees.

(iv) 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/Extranet/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.

(v) 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.

(vi) Department Specific Benefits:

Intranet/Extranet/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.

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 11 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 in to 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