31 August 2001 External T.I. 2001-0094055 - EMPLOY. COMPUTER ALLOW.

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) The taxability of an allowance paid to an employee with respect to an employee owned computer used in connection with the employee's duties.

(2) Where the employer decides to rent the computer from the employee, would subsection 6(3) of the Act deem the amount to be employment income rather than rental income.

Position:

(1) Allowance is taxable. In certain situations the employee may be entitled to deduct expenses.

(2) No. The amount would be taxable as rental income.

Reasons:

(1) Paragraph 6(1)(b) and section 8.

(2) Subsection 6(3) and section 9.

XXXXXXXXXX 2001-009405

Randy Hewlett, B. Comm.

August 31, 2001

Dear XXXXXXXXXX:

Re: Employee Computer Allowance

We are writing in response to your letter dated July 11, 2001, wherein you requested a ruling on:

(1) The taxability of an allowance paid to an employee with respect to an employee owned computer used in connection with the employee's duties, and

(2) Where the employer decides to rent the computer from the employee, would subsection 6(3) of the Income Tax Act (the Act) deem the amount to be employment income rather than rental income.

Our Comments

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R4, Advanced Income Tax Rulings, dated January 29, 2001. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following comments.

Generally, where an employer pays an employee an allowance the amount is included in the employee's income unless there is a specific provision in the Act that provides otherwise. For example, certain reasonable motor vehicle allowances are excluded from income under paragraph 6(1)(b) of the Act.

In the first situation you describe, the allowance is required to be included in the employee's income under paragraph 6(1)(b) of the Act since there is no exclusionary provision for such an amount. In certain situations an employee may be entitled to deduct expenses provided for under section 8 of the Act against the employment income. For further information in that regard, please see Interpretation Bulletin IT-522R Vehicle, Travel and Sales Expenses of Employees. This publication can be found on our Internet website at www.ccra-adrc-gc-ca.

In the second situation you describe, it would be a question of fact whether the amount paid is an allowance or rent. Where the facts indicate that the amount is rent which is taxable under section 9 as property income, subsection 6(3) of the Act would not re-characterize the amount to employment income.

We trust our comments will be of assistance to you.

Yours truly,

Terry Young, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch