9 November 2001 External T.I. 2001-0100305 - EMPLOYER REIMBURSEMENT OF 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 CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues: Whether payments under program in which employer reimburses certain employees for part of the cost of purchasing home computers and software would constitute taxable employment benefits.

Position: Payments would probably result in taxable benefits to employees.

Reasons: Generally, reimbursement of the cost of assets that an employee owns results in a taxable benefits to the employee. There is an exception where an employer provides computers to employees as part of a program to increase employees' computer literacy, if the program falls clearly within our guidelines on employer-paid education costs in Technical News 13. In order to qualify, the employer would have to establish that the principal purpose of the program was to facilitate employee training, the primary beneficially of this training was the employer, and the computers were not part of a remuneration package. This particular program would likely not fit these guidelines because it is targetted to a select group of employees, there are not restrictions placed on the transfer, sale or use of the computers, the employer is not selecting the computer to be provided to the employees, and the program appears to be a longer-term initiative extending over several years. Also, it is questionable whether the principal purpose of the program is to facilitate employee training, or make communication with employees easier.

XXXXXXXXXX 	2001-010030
	.	Wayne Antle, CGA
November 9, 2001

Dear XXXXXXXXXX:

Re: Enhanced Computer Purchase Plan

This is further to your letter dated July 20, 2001, in which you requested an advance income tax ruling as to whether payments made to employees of XXXXXXXXXX (the "employer") under the Enhanced Computer Purchase Plan (the "Program") would constitute taxable employment benefits.

As discussed in IC 70-6R4 Advance Income Tax Rulings dated January 29, 2001, we will only consider a ruling request where it is made in respect of a proposed transaction or series of transactions. In your correspondence, and our telephone conversation (Antle/XXXXXXXXXX) on November 6, 2001, you indicated that the program has already started, and some employees have received payments under it. Therefore, we are unable to provide an advance income tax ruling with respect to the Program and a refund of your deposit will be sent to you under separate cover. However, as requested in our telephone conversation, we will provide the following general comments, which are not binding on the Canada Customs and Revenue Agency ("CCRA").

You have summarized the facts as follows:

The employer is a XXXXXXXXXX corporation whose business consists of XXXXXXXXXX. It has a widely dispersed workforce and would benefit from many of these employees working from their homes. The XXXXXXXXXX industry is increasingly reliant on technology, and many jobs with the employer require employees to be technically adept. The employer believes it will benefit if employees have access to computers at home because they will use them to augment their computer skills, and the employer would be able to more easily communicate with them.

In order to encourage certain employees to purchase up-to-date computer equipment, the employer has set up the Program. Under the Program, regular full-time and part-time managerial and professional ("M&P") employees, as well as temporary full-time M&P employees with at least one year of service, are eligible to receive a reimbursement of up to $XXXXXXXXXX, when they purchase personal computers and software, for use in their homes, that are compatible with equipment used by the employer. In order to receive a reimbursement under the Program, employees must submit receipts to their manager for approval. The Program will operate over a XXXXXXXXXX period running from XXXXXXXXXX, and requests for reimbursement must be submitted within this timeframe for computers and software purchased during the period. Purchases cannot be carried forward to be reimbursed in the next XXXXXXXXXX period. The Program was undertaken as an employer initiative, and participation in the Program is voluntary.

Our Comments

Paragraph 6(1)(a) of the Income Tax Act includes in an employee's income the value of any benefit received or enjoyed in respect of his or her employment. It is our general view that employees will be considered to have received taxable employment benefits when they are reimbursed for part, or all, of the cost of assets which they purchase and continue to own, notwithstanding that the assets may be used for employment-related purposes. For example, paragraph 23 of IT-470R (Consolidated) Employees' Fringe Benefits provides that where an employer makes payments to its employees to offset the cost of tools that the employees are required to have in order to perform their work, the amount of the payment must be included in the employees' incomes.

Recently, we have considered several programs whereby employers provided their employees with personal computers, printers, software, and internet access for the purpose of developing their employees' computer and internet skills. After examining all of the facts and documentation, we concluded that the programs were consistent with our guidelines in Income Tax Technical News No. 13 ("TN13") on employment-related training. Basically, TN13 provides that employer-paid training costs will not result in a taxable employment benefit to the employees where the primary beneficiary of the training is the employer. It was established that the computers were provided to the employees as a training vehicle, and the primary beneficiary of this training was the employer. The programs had the following common characteristics:

1) The employers felt that it was critical for their future success that all employees become computer literate as soon as possible.

2) The employers also felt that the most efficient and effective way to develop their employees' computer and internet skills was to provide them with computers for use in their homes;

3) The programs were available to all employees;

4) The employers leased or purchased the computers, and had them delivered directly to the employees;

5) The employees could not transfer or sell the computers for a set period of time;

6) Employees who chose not to participate in the programs were not entitled to any compensation in lieu of their participation;

7) The programs were initiated by the employers and were not part of any collective bargaining process.

In our view, the payments made to employees under the existing Program would constitute taxable employment benefits to the employees. In order for the Program to fall within our guidelines in TN13 on employer-paid training costs, it must be established that the employer is reimbursing the cost of personal computers and software purchased by its employees for the principal purpose of developing their computer skills, that the primary beneficiary of this training is the employer, and that the computers and related software are not being provided as a form of remuneration. In our view, it cannot be concluded that the Program is consistent with these guidelines. Unlike the earlier programs considered, the Program is only available to certain employees, there are no restrictions placed on the use, sale or transfer of the computer equipment by the employees, the employer does not directly select the particular computer and software to be provided to the employees, and the Program appears to be a long-term initiative extending over several years. Also, it is not clear whether the principal purpose of the Program is for employee training, or to facilitate communication with employees.

We recognize that programs can have a variety of structures and still fall within the guidelines set down in TN13. If the employer is proposing to implement a new program, or modify its existing program, to provide computers to its employees for the purpose of developing their computer skills, we will consider such a program in the context of an advance income tax ruling request to determine if the new program is consistent with our policy on employer-paid training costs.

We trust that our comments will be of assistance.

Yours truly,

John Oulton, CA
For Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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