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, if employees are given ownership of computers
Position: There is no taxable benefit to the employee participants in the program.
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 similar rulings given for comparable programs. Even though the employees have full ownership of the computers, they are not allowed to sell the equipment, or allow anyone outside their household to use the equipment, for the first year of ownership.
XXXXXXXXXX 2001-007397
XXXXXXXXXX , 2001
Dear XXXXXXXXXX:
Re: Advance Income Tax Ruling
XXXXXXXXXX ("XCo") XXXXXXXXXX
XXXXXXXXXX ("YCo") XXXXXXXXXX
XXXXXXXXXX ("ZCo") XXXXXXXXXX
This is in reply to your letter dated XXXXXXXXXX requesting an advance income tax ruling on behalf of the above-noted taxpayers. We also acknowledge the additional 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 is:
(i) in an earlier return of the taxpayer or a related person,
(ii) 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) under objection by the taxpayer or a related person,
(iv) before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired, and
(v) 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 are as defined in the Act unless otherwise indicated.
Our understanding of the facts, proposed transactions and the purpose of the proposed transactions is as follows:
Facts
1. XCo, YCo, and ZCo (hereinafter collectively referred to as "the group of companies") are resident in Canada, and each is a taxable Canadian corporation, as defined in subsection 89(1) of the Act.
2. The group of companies is owned by XXXXXXXXXX ("USCo"), a resident of the United States of America.
3. USCo is the subsidiary of XXXXXXXXXX ("Parentco"), a multinational corporation, whose head office is in XXXXXXXXXX. Parentco is XXXXXXXXXX.
Proposed Transactions
4. Parentco is launching a unified program (the "program") in which its employees, as well as employees of its subsidiaries throughout the world, will be entitled to receive a personal desktop computer (including monitor, mouse, keyboard, printer, speakers, and internal 56K modem) or laptop computer (including printer, mouse, and internal 56K modem), pre-installed internet access free for at least one year, Microsoft software, and access to the company's internal XXXXXXXXXX network. This package is referred to as the "PC Bundle".
5. The program will be offered to all full-time or part-time employees of the group of companies that were employed prior to XXXXXXXXXX, are scheduled to work at least XXXXXXXXXX hours per week and are eligible to receive company benefits ("eligible employees"). The eligible employees have a period of XXXXXXXXXX days to sign up for the program.
6. The eligible employees will be entitled to choose from four options under this program:
i) Standard PC Bundle (XXXXXXXXXX)
ii) Premium PC Bundle (XXXXXXXXXX)
iii) Laptop PC Bundle (XXXXXXXXXX )
iv) No computer at all.
7. The cost of the computers including PST and GST has been calculated to be $XXXXXXXXXX for the Standard PC Bundle, $XXXXXXXXXX for the Premium PC Bundle and $XXXXXXXXXX for the Laptop PC Bundle.
8. The group of companies will be offering the Standard PC Bundle to all eligible employees at no cost. If, however, the eligible employees choose option (ii) or (iii), then these employees must pay $XXXXXXXXXX or $XXXXXXXXXX respectively, being the difference between the cost of the Standard PC Bundle and their upgraded choice.
9. The eligible employees also have the option to not enter the program. Employees opting not to join the program do not receive any other compensation for rejecting the free Standard PC Bundle.
10. The computers will be assembled in XXXXXXXXXX and purchased by the group of companies. They will be delivered directly to the homes of the eligible employees who participate in the program (the "participants").
11. The participants will have full ownership of the computers. However, the participants must sign an agreement whereby they agree not to sell or otherwise assign their PC Bundles within the first XXXXXXXXXX months after receiving them. Further, the agreement specifies that the computers may only be used in the participants' homes by persons who live there. If participants violate this agreement, they will immediately be required to reimburse their employer for the difference between any contributions made and the original value of the PC Bundle. If participants leave or are terminated before the computer is delivered, then the order will be cancelled. Orders cannot be cancelled at the option of the participants.
12. The agreement acknowledges that the program is being launched to allow eligible employees to increase their knowledge and skills in relation to the use of computers, and the internet. While there is no requirement that the participants return the computers to their particular employer, or reimburse their employer, if they leave during the first year after they receive the computer, the agreement acknowledges that these employees will be considered to have received an employment benefit equal to the value of the Standard PC Bundle ($XXXXXXXXXX).
Purpose of the Proposed Transactions
13. Through the group of companies and other subsidiaries, Parentco operates in a rapidly changing environment using leading edge technology. Parentco has an urgent need for every employee to be fully computer literate. By providing computers to every employee, Parentco believes it will accelerate productivity and develop the business technology skills required by a workforce that seeks to be at the leading edge in XXXXXXXXXX. The group of companies strongly believes that a key to their success is having a workforce compatible with the latest advancements in technology.
Employee Training
14. The group of companies is committed to computer-based technology. Having this program in place, allows employees, through experimentation in their homes, to upgrade their knowledge and skills, and to increase their computer literacy and understanding of current technology, while reducing the future training costs to the group of companies.
Corporate Communication
15. By being part of a worldwide program, the participants from the group of companies are able to communicate with Parentco and its subsidiaries at any time, from home, or work.
Work-Personal Life Balance
16. Such a program also allows employees to better balance their work and personal lives, thereby increasing the group of companies' ability to retain staff.
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:
A. We confirm that the employees of the group of companies who acquire PC Bundles under the program in the manner set out in paragraphs 4 to 12 above, and who will continue to be employed for at least one year after receiving the computer equipment, will not be required to include any amount in their income pursuant to subsection 5(1) or section 6 of the Act with respect to their participation in the program.
B. We also confirm that the group of companies will be entitled to deduct the cost of the PC Bundles, offset by any amounts recovered from participants in the program in the manner described in paragraph 8 above, pursuant to section 9 of the Act.
The rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R4 dated January 29, 2001, and are binding on the Canada Customs and Revenue Agency provided that XCo, YCo, and ZCo commences the program by XXXXXXXXXX.
The rulings are based on the Act in its present form and do not take into account any proposed amendments to the Act which, if enacted, could have an effect on the rulings provided herein.
This ruling is given on the understanding that the computers are being provided to employees, on a one-time basis, to enable the employees to become knowledgeable in the use of computers and the internet.
Yours truly
XXXXXXXXXX
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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© Her Majesty the Queen in Right of Canada, 2001
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