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
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.
XXXXXXXXXX 2001-007786
XXXXXXXXXX, 2001
Dear XXXXXXXXXX:
Re: Advance Income Tax Ruling
XXXXXXXXXX ("Subco")
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. Subco is a corporation governed by the Canada Business Corporations Act.
2. Subco is a wholly owned subsidiary of XXXXXXXXXX, a corporation resident in the United States ("Parentco"). Parentco employs directly and through its subsidiaries approximately XXXXXXXXXX of which are employed by Subco.
3. XXXXXXXXXX.
4. XXXXXXXXXX.
5. XXXXXXXXXX.
6. 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. XXXXXXXXXX To achieve this goal, and in keeping with Parentco's vision XXXXXXXXXX, each and every one of the worldwide employees of Parentco must become computer-literate and develop their computer skills in the near-term.
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 customers and open a new communication channel with its employees, Parentco proposes to implement a program (the "Program"), pursuant to which all of the XXXXXXXXXX employees of Parentco will be offered a computer, printer and unlimited internet access.
8. All active full-time employees (XXXXXXXXXX) of Parentco and its subsidiaries and affiliates, including, in particular, Subco, will be given the opportunity to participate in the Program and, therefore, receive, for use in their homes, a computer, printer and unlimited internet access.
9. 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 employees who participate in the program (the "Participants"), at their expense, may choose to upgrade the equipment and purchase additional peripheral equipment.
10. XXXXXXXXXX.
11. Each Participant must sign a membership agreement which will provide that membership in the Program is for a term of XXXXXXXXXX months, (the "Membership Period") and that the membership may not be transferred.
12. Each Participant will be required to make a monthly payment to their employer in the Parentco group throughout the term of the Membership Agreement of XXXXXXXXXX dollars. This nominal fee is intended to cover the Participants' incidental personal use.
13. It is assumed that each Participant will be able to connect with a local phone number. The Participant must provide access to a phone line.
14. Each time a Participant connects to the internet, he or she will be presented with a customised "XXXXXXXXXX" screen only available to Participants. XXXXXXXXXX.
15. Each Participant will receive XXXXXXXXXX e-mail addresses XXXXXXXXXX. Additional addresses may be purchased at an additional cost.
16. XXXXXXXXXX.
17. Participants will have unlimited access to the internet, subject to theXXXXXXXXXX (the "Policy"). The Policy prohibits, inter alia, internet use for commercial purposes that are not Parentco-related or Subco-related. Subject to the Policy, Parentco and Subco will not track the Participants' activities on the internet. 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, the Participants will have links to Parentco and Subco related sites which will enable them to communicate with management and with each other, and to learn more about Parentco and Subco. This medium may also provide future opportunities for employee education programs.
18. XXXXXXXXXX, Participants who leave Subco during the Membership 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.
19. XXXXXXXXXX.
20. Participants are required to keep physical possession of the computer equipment throughout the Membership Period. Neither the computer nor the internet access is transferable. XXXXXXXXXX.
21. After the Membership Period, Participants will have unrestricted ownership of the computer.
22. It is expected that the Participants will use the computer and internet access to develop their computer skills and become computer literate so that they can adapt to the changing technology in their workplace.
23. The Program XXXXXXXXXX does not result from any request from the employees of Parentco or Subco.
24. The Program is not substantially different from programs launched in the past year by a number of major multinational corporations. XXXXXXXXXX.
Purpose of the Proposed Transactions:
25. The purpose of the Program is to increase Parentco's and Subco's competitive advantage in the XXXXXXXXXX industry by (i) enhancing the technological capabilities of its employees, (ii) linking employees closer with customers, and (iii) opening a new communication channel with employees.
Improved Employee Skills
26. One of the principal objectives of the Program is to enhance the technological capabilities of employees and enable them to develop a greater understanding of the internet and the internet economy. This will allow Parentco and Subco to have an electronically connected, computer literate and web-enabled work force.
27. XXXXXXXXXX.
28. The Program will thus aid in developing a work force at Subco and Parentco that will be capable of using computers and the internet in the course of their employment activities, which skills are becoming increasingly necessary for all employees.
29. For example, as a result of the Program, a significant component of the work force, particularly the XXXXXXXXXX personnel who do not have access to a computer during work hours, would improve their computer knowledge and internet communication skills which are becoming necessary work-related skills in the competitive and evolving global market.
30. The Program will also increase the mobility and adaptability of the Participants within its various divisions of Subco. It will become easier for Subco to transfer an employee from one division to another, as all employees will have received the tools to familiarize themselves with computers and the internet. This should reduce the training costs that Subco incurs when it transfers employees between its various divisions and departments.
31. Similarly, computer and internet-literate employees are more easily and cost effectively transferred to other organizations within the Parentco corporate group, which benefits the organization as a whole.
32. XXXXXXXXXX.
Communications with Customers
33. Another objective of the Program is to develop employee business acumen and understanding of the customer mindset in order to improve productivity, efficiency, and customer satisfaction. The internet is becoming an increasingly important mode of doing business. Consequently, by allowing employees to "surf the net", they will gain a greater understanding of their customers in general, and be able to provide Parentco and Subco with insight concerning how best to use the internet medium, and specifically the Parentco and Subco web sites to attract and retain customers and meet their needs and desires. In addition, by surfing XXXXXXXXXX sites, an employee can gain a better appreciation for, and understanding of the XXXXXXXXXX business in particular, and by surfing the net more widely, an employee can gain an understanding of the marketplace in general.
34. XXXXXXXXXX:
35. The Program will provide employees with the ability to "chat" with customers about Parentco and Subco products and service, as well as about the XXXXXXXXXX industry in general. The employee will thus be linked closer to the customer and will therefore be in a better position to serve the customer quickly and effectively and to understand the customer mindset and to address customers' and potential customers' questions and concerns. Unfiltered communication between consumers and Subco employees, particularly those in the plant who are directly involved in the design and manufacture of Parentco and Subco products, could result in identification of product improvements which would further increase customer satisfaction. More particularly, employees will consider suggestions from customers as to ways to improve their XXXXXXXXXX products and services and, in this regard, learn about any problems that customers may be experiencing with respect to such products and services that may not have surfaced during product testing or product design and bring these to Parentco's immediate attention.
36. By connecting Parentco's and Subco's employees to its customers via the internet, the employees will become more sensitized to and concerned with customer satisfaction. More specifically, Parentco wants its employees, and those of Subco, to realize that its success as a consumer-oriented company depends on them, that is, that they have the power to make Parentco and Subco successful because their actions translate directly into the customer satisfaction upon which each company's success so vitally depends. XXXXXXXXXX.
Communications with Employees
37. By linking Parentco's XXXXXXXXXX employees worldwide, Parentco and Subco will benefit immediately from the cost savings associated with streamlined communications. This streamlining of communications and operations in the near term cannot be achieved if any entity or segment in the Parentco group is excluded from the Program.
38. In addition, home computers with internet access will enable XXXXXXXXXX personnel who, for the most part, do not have computers for use during office hours, to read business communications from senior management. By providing these employees with timely access to the same company communications now available to salaried personnel on-line, it will keep them more in touch with Subco and Parentco, promoting more of a team atmosphere, reduce costs and provide all employees with a greater understanding of the company.
39. Internet access also provides a forum for Parentco's worldwide employees to communicate with each other, thereby enabling them to share information and experiences. Providing this opportunity for continued dialogue between the hourly and salaried work forces around the world would improve the level of understanding of employee policies, procedures and practices globally and in local environments and strengthen the sense of team spirit throughout the organization. This would have the benefit of enhancing employee satisfaction and loyalty to Parentco and Subco XXXXXXXXXX.
40. Home computers and internet access will also provide Participants with increased flexibility by allowing them to access e-mail and Subco files from home. This will increase productivity and loyalty, as employees will more easily be able to balance work and personal/family needs.
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 ruling is as follows:
We confirm that, no amount will be included in the Participants' income pursuant to subsection 5(1) or section 6 of the Act with respect to their participation in the Program as described in paragraphs 7 to 24 above...
The ruling is given subject to the limitations and qualifications set out in Information Circular 70-6R4 dated January 29, 2001, and is binding provided that Subco 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 Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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